<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12
LG&E ENERGY CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ 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: common
stock
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(2) Aggregate number of securities to which transaction applies:
133,644,748
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(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):
$24.85 (cash consideration to be received per share of common stock)
times 133,644,748 shares
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(4) Proposed maximum aggregate value of transaction:
$3,321,071,988
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(5) Total fee paid:
$664,215
-----------------------------------------------------------------------
/ / 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 No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
[Letter Date]
Dear LG&E Energy Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
LG&E Energy Corp., a Kentucky corporation, which will be held on [MEETING DATE]
at [The Kentucky International Convention Center (formerly the Commonwealth
Convention Center), Third and Market Streets, Louisville, Kentucky.] The meeting
will start at [MEETING TIME], local time.
At the annual meeting, you will be asked to approve a merger agreement
pursuant to which LG&E Energy will become an indirect wholly owned subsidiary of
PowerGen plc, a public limited company registered in England and Wales. At the
annual meeting, you also will be asked to elect four directors, approve Arthur
Andersen LLP as independent auditors of LG&E Energy for 2000, and approve the
transaction of any other business properly brought before the meeting.
Additionally, LG&E Energy's management will report on the progress of LG&E
Energy, and you will have the opportunity to present questions of general
interest.
LG&E Energy entered into a merger agreement with PowerGen on February 27,
2000. That merger agreement provides that a Kentucky corporation, to be formed
as an indirect wholly owned subsidiary of PowerGen, will be merged into LG&E
Energy, with LG&E Energy as the surviving corporation. As a result of the
merger, PowerGen will become the parent company of LG&E Energy. Upon completion
of the merger, owners of LG&E Energy common stock will receive $24.85 in cash,
without interest, for each share of LG&E Energy common stock held.
Approval of the merger agreement by shareholders of LG&E Energy is a
condition to the completion of the merger. The merger will be completed only
after certain regulatory approvals are received and other conditions are
satisfied or waived. It is presently anticipated that this will occur
approximately nine to twelve months after the date of the merger agreement.
Your board of directors has carefully reviewed and considered the terms and
conditions of the merger agreement, believes that they are in the best interests
of LG&E Energy shareholders, has adopted the merger agreement and recommends a
vote for approval of the merger agreement.
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,
Roger W. Hale
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
PRELIMINARY PROXY
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [MEETING DATE]
To the Shareholders of
LG&E Energy Corp.
An annual meeting of holders of common stock of LG&E Energy Corp., a
Kentucky corporation, will be held on [MEETING DATE] at [The Kentucky
International Convention Center (formerly the Commonwealth Convention Center),
Third and Market Streets, Louisville, Kentucky], commencing at [MEETING TIME],
local time. At the annual meeting, shareholders will be asked to consider and
vote upon the following matters:
1. A proposal to approve the Agreement and Plan of Merger, dated as of
February 27, 2000, among PowerGen plc, LG&E Energy Corp., a corporation
to be formed under the laws of the State of Delaware as an indirect
wholly owned subsidiary of PowerGen and a corporation to be formed under
the laws of the State of Kentucky as an indirect wholly owned subsidiary
of PowerGen, a copy of which agreement is attached as APPENDIX A to the
accompanying proxy statement;
2. A proposal to elect four directors for three-year terms expiring in
2003;
3. A proposal to approve and ratify the appointment of Arthur Andersen LLP
as independent auditors of LG&E Energy for 2000; and
4. Such other business as may properly come before the meeting.
The close of business on [RECORD DATE], 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. At the
close of business on [RECORD DATE], the record date for the annual meeting,
there were [129,677,030] shares of common stock, no par value, 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 [RECORD DATE] are entitled to one vote per share for each matter
presented at the annual meeting or any adjournment thereof, except that
shareholders have cumulative voting rights with respect to the election of
directors.
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 delivering a
later-dated proxy, or by attending the annual meeting and revoking your proxy in
person. Signing a proxy does not preclude you from attending the meeting in
person.
Under Kentucky law, you are entitled to seek the judicially determined value
of your common stock in lieu of the $24.85 provided in the merger agreement, but
that judicially determined amount may be more or less than $24.85. To do this,
you must comply with the requirements of Chapter 271B, Subtitle 13 of the
Kentucky Business Corporation Act, as described in more detail in the
accompanying proxy statement, which includes, as APPENDIX C, a copy of the
dissenters' rights provisions of the Kentucky Business Corporation Act.
The Annual Report to Shareholders of LG&E Energy, which includes summary
consolidated financial statements as well as LG&E Energy's consolidated
financial statements, is being mailed to LG&E Energy's shareholders together
with the accompanying proxy statement.
<PAGE>
You are cordially invited to attend the annual meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL 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
[INSERT DATE]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY TERM SHEET.......................................... 1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 3
SUMMARY..................................................... 4
The Companies............................................. 4
The Annual Meeting........................................ 4
The Merger................................................ 5
The Merger Agreement...................................... 7
Market Prices of LG&E Energy Shares....................... 9
THE ANNUAL MEETING.......................................... 10
Purpose, Time and Place................................... 10
Record Date, Voting Power and Vote Required............... 10
Share Ownership of Management............................. 11
Stock Ownership Plans..................................... 11
Voting of Proxies......................................... 11
Revocability of Proxies................................... 12
Solicitation of Proxies................................... 12
PROPOSAL NO. 1: THE MERGER.................................. 13
General Description of the Merger......................... 13
Background................................................ 13
Reasons for the Merger and Recommendation of the Board of
Directors............................................... 17
Opinion of Financial Advisor to the LG&E Energy Board..... 18
Effective Time of the Merger.............................. 23
Directors and Officers.................................... 24
Regulatory Matters........................................ 24
Effects of the Merger..................................... 27
Merger Financing.......................................... 27
Interests of Certain Persons in the Merger................ 27
Certain Federal Income Tax Consequences of the Merger..... 31
RIGHTS OF DISSENTING SHAREHOLDERS........................... 33
THE MERGER AGREEMENT........................................ 35
General................................................... 35
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Corporate Governance Matters.............................. 35
Conversion of LG&E Energy Shares.......................... 35
Representations and Warranties............................ 37
Covenants................................................. 38
Additional Agreements..................................... 40
Conditions................................................ 42
Termination, Amendment and Waiver......................... 44
THE COMPANIES............................................... 47
LG&E Energy Corp.......................................... 47
PowerGen plc.............................................. 47
PROPOSAL NO. 2: ELECTION OF DIRECTORS....................... 48
INFORMATION ABOUT DIRECTORS AND NOMINEES.................... 49
INFORMATION CONCERNING THE BOARD OF DIRECTORS............... 51
OWNERSHIP OF LG&E ENERGY COMMON STOCK....................... 54
PROPOSAL NO. 3: APPROVAL OF INDEPENDENT AUDITORS FOR 2000... 55
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION................................................ 56
COMPANY PERFORMANCE......................................... 61
EXECUTIVE COMPENSATION AND OTHER INFORMATION................ 62
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING............... 67
OTHER MATTERS............................................... 68
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 68
WHERE YOU CAN FIND MORE INFORMATION......................... 68
</TABLE>
APPENDICES
<TABLE>
<S> <C>
APPENDIX A Agreement and Plan of Merger
APPENDIX B Opinion of the Blackstone Group L.P.
APPENDIX C Chapter 271B, Subtitle 13 of the Kentucky Business
Corporation Act
</TABLE>
ii
<PAGE>
SUMMARY TERM SHEET
Q. WHAT WILL HAPPEN IN THE PROPOSED MERGER?
A. PowerGen will acquire LG&E Energy by merging one of PowerGen's
subsidiaries into LG&E Energy. Please read pages 13-32 for a description of the
merger.
Q. WHY HAVE WE DECIDED TO MERGE?
A. Our board of directors believes that the transaction is in the best
interests of our shareholders because, among other factors, it offers a
significant premium over the trading price of our common stock. The board of
directors and management also believe that the merger will benefit the combined
company and its customers and employees in a manner that we could not achieve on
our own.
Please read the more detailed description of our reasons for the merger on
pages 17-18.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. You will receive $24.85 in cash, without interest, for each share of
common stock that you own.
Q. WHAT DO I NEED TO DO NOW?
A. After you carefully read this document, please complete, sign, date and
mail your proxy card in the enclosed return envelope as soon as possible. That
way, your shares can be represented at the meeting. We cannot complete the
merger unless a majority of our outstanding shares entitled to vote approves the
merger agreement. Your vote is very important.
THE LG&E ENERGY BOARD OF DIRECTORS RECOMMENDS VOTING FOR APPROVAL OF THE
MERGER AGREEMENT.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. If the merger is approved and completed, a paying agent selected by
PowerGen, with the approval of LG&E Energy, will send you written instructions
for submitting your LG&E Energy stock certificates. You must follow those
instructions and return your stock certificates accordingly to the paying agent.
You will receive your cash payment as soon as practicable after the paying agent
receives your LG&E Energy stock certificates along with the other documents
requested in those instructions. You should not send in your stock certificates
before you receive instructions.
Q. WHAT OTHER APPROVALS ARE REQUIRED FOR THE MERGER?
A. In addition to approvals by the boards of directors of PowerGen and LG&E
Energy, both of which have already been obtained, the merger must be approved by
the holders of a majority of the outstanding LG&E Energy shares and the holders
of a majority of PowerGen's ordinary shares who vote at its shareholders'
meeting. The meeting of PowerGen's shareholders is scheduled to take place on
June 5, 2000. We also must obtain certain regulatory approvals for the merger.
Please read the more detailed description of the regulatory approvals on
pages 24-27.
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A. We are working to complete all aspects of the merger as quickly as
possible. Currently, we expect to complete the merger approximately nine to
twelve months after February 27, 2000, the date of the merger agreement.
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<PAGE>
Q. WHAT HAPPENS IF I DO NOT INSTRUCT A BROKER HANDLING MY SHARES ON HOW TO
VOTE ON THE MERGER OR IF I ABSTAIN FROM VOTING?
A. If a broker holds your LG&E Energy shares as nominee, he or she will not
be able to vote them without instructions from you. If you mark your proxy
"Abstain" or do not instruct your broker on how to vote, your shares will have
the effect of a vote against the merger.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED AND DATED PROXY CARD?
A. Yes. You may revoke your proxy at any time before the vote has taken
place at the annual meeting by any of the following methods: (1) notifying in
writing LG&E Energy Corp., 220 West Main Street, Louisville, Kentucky 40202,
Attention: John R. McCall, Secretary, (2) completing a later-dated proxy and
returning it to LG&E Energy's shareholder services representative at Regina
Forella, Automatic Data Processing--Investor Communication Services, 51 Mercedes
Way, Edgewood, New York 11717, if you sent your original proxy there, or to your
broker if your shares are held by a broker, or (3) appearing at the annual
meeting in person and revoking your proxy orally by notifying the Secretary
before the vote takes place. Simply attending the meeting, however, will not
revoke your proxy. Additional proxy cards are available from Regina Forella by
calling (631) 254-1836, or your broker, if your shares are held by a broker.
Q. WHOM SHOULD I CALL IF I WANT TO REQUEST AN ADDITIONAL COPY OF THIS DOCUMENT?
A. You may call Donald J. Harris, Jr. at (502) 627-3445 or (800) 235-9705 to
request an additional copy of this document. If your broker holds your shares,
you should call your broker for additional copies.
Q. WHAT OTHER MATTERS WILL BE VOTED ON AT THE MEETING?
A. You also will vote on the election of four directors for a three-year
term, the approval and ratification of the appointment of Arthur Andersen LLP as
independent auditors of LG&E Energy for 2000 and any other matters that properly
come before the meeting.
Q. WILL I HAVE DISSENTERS' APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER?
A. Yes. If you do not vote in favor of the merger and if you otherwise
comply with the procedures discussed on pages 33-34 and APPENDIX C, you will
have dissenters' appraisal rights.
Q. WHERE CAN I FIND MORE INFORMATION ABOUT LG&E ENERGY?
A. You can receive additional information from the sources described under
"WHERE YOU CAN FIND MORE INFORMATION" on page 68 of this document.
2
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this proxy statement constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The forward-looking statements relate to anticipated financial
performance, management's plans and objectives for future operations, business
prospects, outcome of regulatory proceedings, market conditions and other
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements in certain circumstances. The following
discussion is intended to identify the forward-looking statements and certain
factors that could cause future outcomes to differ materially from those set
forth in the forward-looking statements.
Forward-looking statements include the information concerning possible or
assumed future results of operations of LG&E Energy set forth under
"SUMMARY--THE MERGER AGREEMENT," "THE MERGER--REASONS FOR THE MERGER AND THE
RECOMMENDATION OF THE BOARD OF DIRECTORS," "THE MERGER--OPINION OF FINANCIAL
ADVISOR TO THE LG&E ENERGY BOARD" and other statements in this proxy statement
identified by words such as "anticipate," "estimate," "expect," "believe," and
"objective" and include, in particular, the statements as to (1) the business,
financial condition, earnings and prospects of LG&E Energy and PowerGen expected
in the future, (2) the beliefs and bases for those beliefs set forth under "THE
MERGER--REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF DIRECTORS" and
(3) the estimates, projections and forecasts analyzed by LG&E Energy's financial
advisor in connection with its opinion as set forth under "THE MERGER--OPINION
OF FINANCIAL ADVISOR TO THE LG&E ENERGY BOARD." Readers are cautioned not to
place undue reliance on such forward-looking statements, which involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of LG&E Energy to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. In addition to any assumptions and other
factors referred to specifically in connection with these forward-looking
statements, factors that could cause actual results to differ materially from
those contemplated in any forward-looking statement include, among others, the
following: regulatory matters; regulatory delays or conditions imposed by
regulatory bodies in approving the merger, as well as adverse regulatory
treatment; the loss of any significant customers; changes in business strategy
or development plans; the speed and degree to which competition enters the
electric utility industry; state and federal legislative and regulatory
initiatives that increase competition, affect cost or investment recovery or
have an impact on rate structures; industrial, commercial and residential growth
in the service territory of LG&E Energy; the impact of general economic changes;
changing fuel prices; changes in accounting rules and interpretations which may
have an adverse impact on LG&E Energy's statements of financial position and
reported earnings; adverse changes in energy needs and customer growth; the
weather and other natural phenomena; the timing and extent of changes in
interest rates; and the development of opportunities for growth by LG&E Energy.
LG&E Energy is under no obligation to update these forward-looking statements to
reflect actual results, changes in assumptions or changes in other factors
affecting such forward-looking statements.
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION IN THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY, AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 68
OF THIS DOCUMENT. EACH ITEM IN THIS SUMMARY INCLUDES A PAGE REFERENCE DIRECTING
YOU TO A MORE COMPLETE DESCRIPTION OF THAT ITEM. ("WE" AND "OUR" AS USED IN THIS
DOCUMENT REFER TO LG&E ENERGY AND, IF APPLICABLE, ITS SUBSIDIARIES.)
THE COMPANIES
LG&E ENERGY CORP. (see page 47)
220 West Main Street
Louisville, Kentucky 40202
(502) 627-2000
LG&E Energy, incorporated November 14, 1989, is a diversified
energy-services holding company with four direct operating subsidiaries:
Louisville Gas and Electric Company, referred to as "LG&E," Kentucky Utilities
Company, referred to as "KU," LG&E Energy Marketing, Inc., referred to as "LEM"
and LG&E Capital Corp., referred to as "Capital Corp." We are engaged, through
our subsidiaries, in retail utility services, energy marketing, power generation
and project development. Our domestic regulated gas and electric utility
operations are conducted by LG&E and KU.
POWERGEN PLC (see page 47)
53 New Broad Street
London BC2M 1SL, England
PowerGen is one of the United Kingdom's leading integrated electricity and
gas companies. PowerGen has 2.6 million electricity and gas customers in England
and Wales. PowerGen produces enough electricity to power the homes of around
11 million people in England and Wales. PowerGen is the leading supplier of
electricity to British industry and commerce and is the United Kingdom's largest
user of gas and a leading gas trader. PowerGen is also a leading developer and
operator of combined heat and power plants. PowerGen also owns an electricity
distribution company and has been involved in 11 power projects worldwide.
US SUBHOLDCO 2 AND MERGER SUB
US Subholdco 2 will be formed as a Delaware corporation and an indirect
wholly owned subsidiary of PowerGen and Merger Sub will be formed as a Kentucky
corporation and a direct wholly owned subsidiary of US Subholdco 2. Neither US
Subholdco 2 nor Merger Sub will have any activities prior to the merger other
than those incident to their formation and the transactions contemplated by the
merger agreement. The principal place of business for each of US Subholdco 2 and
Merger Sub will be determined prior to the merger.
THE ANNUAL MEETING
(see pages 10-12)
The annual meeting of LG&E Energy shareholders will be held at [The Kentucky
International Convention Center (formerly the Commonwealth Convention Center),
Third and Market Streets, Louisville, Kentucky] on [MEETING DATE], at [MEETING
TIME], local time.
4
<PAGE>
At the annual meeting, we will ask you to vote upon a proposal to approve
the merger agreement, elect four directors for three-year terms, approve Arthur
Andersen LLP as independent auditors of LG&E Energy for 2000 and vote on any
other business properly brought before the meeting.
At the close of business on [RECORD DATE], the record date for the annual
meeting, there were [129,677,030] shares of common stock, no par value, of LG&E
Energy outstanding and entitled to vote. References to common stock or shares of
LG&E Energy include the preferred stock purchase rights issued under LG&E
Energy's rights agreement. LG&E Energy has no other outstanding voting
securities. Owners of record of LG&E Energy common stock at the close of
business on [RECORD DATE] are entitled to one vote per share for each matter
presented at the annual meeting or any adjournment thereof, except that they
have cumulative voting rights with respect to the election of directors.
SHARE OWNERSHIP OF MANAGEMENT (see page 11)
At the close of business on [RECORD DATE], our directors and executive
officers and their affiliates beneficially owned approximately 1.25% of the
outstanding LG&E Energy shares.
THE MERGER
BACKGROUND OF AND REASONS FOR THE MERGER (see pages 13-18)
You should review the factors that our board of directors considered when
deciding whether to approve the merger.
RECOMMENDATION TO SHAREHOLDERS (see pages 17-18)
Our board of directors has determined that the merger is advisable to and in
the best interests of our shareholders and recommends that you vote to approve
the merger agreement at the meeting.
FAIRNESS OPINION (see pages 18-23)
In deciding to approve the merger, our board of directors considered, among
other things, the opinion of The Blackstone Group L.P., its financial advisor,
as to the fairness, from a financial point of view, of the consideration of
$24.85 per share that you will receive. A copy of the opinion is attached as
APPENDIX B to this document and is also discussed on pages 18-23. We encourage
you to read this opinion.
REGULATORY MATTERS (see pages 24-27)
Certain regulatory requirements must be complied with and approvals obtained
before the merger can be completed, including among others:
- the approval of the Federal Energy Regulatory Commission, referred to as
"FERC," pursuant to the Federal Power Act, as amended, referred to as the
"Power Act;"
- the approval of the Securities and Exchange Commission, referred to as the
"SEC," pursuant to the Public Utility Holding Company Act of 1935, as
amended, referred to as the "1935 Act;" and
- the support or approval of the Kentucky Public Service Commission,
referred to as the "Kentucky Commission," and the Virginia State
Corporation Commission, referred to as the "Virginia Commission."
In addition, prior to completing the merger, the applicable waiting period
under a federal antitrust law, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, referred to as the
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<PAGE>
"HSR Act," must expire or terminate, and no action must be taken by the federal
government on the basis of national security concerns under the Exon-Florio
Provisions of the Omnibus Trade and Competitiveness Act of 1988, referred to as
"Exon-Florio."
INTERESTS OF CERTAIN PERSONS IN THE MERGER (see pages 27-31)
In considering the recommendation of the LG&E Energy board of directors to
approve the merger, LG&E Energy shareholders should be aware that members of the
LG&E Energy board of directors and LG&E Energy management will receive benefits
as a result of the merger that will be in addition to or different from the
benefits that LG&E Energy shareholders receive generally. For example, after the
merger, Roger W. Hale, the current Chairman of the Board and Chief Executive
Officer of LG&E Energy, will remain an officer and director of LG&E Energy and
will become a member of PowerGen's board of directors. In addition, new
employment agreements with Mr. Hale and four other senior executives of LG&E
Energy have been executed. These agreements provide, among other things, that:
- the prior employment and change in control severance agreements in place
between LG&E Energy and Mr. Hale, and all prior severance agreements in
place between LG&E Energy and the four senior executives, will terminate
as of the date the merger is consummated, and, at that time, Mr. Hale will
receive full payment, and each senior executive will receive partial
payment, of amounts otherwise payable under the terminated agreements in
consideration for the termination of those agreements;
- the four senior executives will receive the balance of the payments due
under their terminated severance agreements, plus additional payments as
incentives to remain employed by the surviving corporation, on the last
day of the eighteenth month following the date the merger is consummated
or earlier, if the executive's employment is terminated for specified
reasons or if a change of control or ownership of PowerGen occurs; and
- Mr. Hale and the four senior executives will be provided with severance
benefits in the event of termination of employment under specified
circumstances, and these severance benefits will be enhanced for the four
senior executives if these terminations of employment occur after a change
of control or ownership of PowerGen.
The members of the LG&E Energy board of directors knew about these
additional interests and considered them when they adopted the merger agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (see pages 31-32)
The merger will be a taxable transaction to you. For United States federal
income tax purposes, you will generally recognize gain or loss in an amount
equal to the difference between the cash you receive in the merger and your tax
basis in your LG&E Energy shares. Because determining the tax consequences of
the merger can be complicated, you should consult your own tax advisor to
understand fully how the merger (or the exercise of dissenters' rights) will
affect you in light of your individual circumstances.
DISSENTERS' RIGHTS OF APPRAISAL (see pages 33-34)
Under Kentucky law, holders of record of LG&E Energy common stock as of
February 28, 2000 who do not wish to accept the consideration they would receive
in the merger in exchange for their shares have the right to receive the fair
value of their LG&E Energy shares. In order to perfect such dissenters' rights,
a holder of LG&E Energy common stock must comply with the requirements of the
Kentucky Business Corporation Act. See "RIGHTS OF DISSENTING SHAREHOLDERS" and
Chapter 271B,
6
<PAGE>
Subtitle 13 of the Kentucky Business Corporation Act, a copy of which is
attached as APPENDIX C to this proxy statement.
THE MERGER AGREEMENT
The merger agreement is the legal document that governs the merger. The
merger agreement is attached as APPENDIX A to this proxy statement, and we
encourage you to read it carefully. See pages 35-46 for a summary of the merger
agreement.
EFFECTIVE TIME OF THE MERGER (see page 35)
The merger is expected to occur shortly after all the conditions to the
completion of the merger have been satisfied or waived. It is currently expected
that the merger will be completed within approximately nine to twelve months
from the date of the merger agreement, although the merger may be completed
sooner or later, or not at all, depending on when and if the conditions to the
merger are satisfied.
MERGER CONSIDERATION (see page 35)
Upon completion of the merger, each of your LG&E Energy shares of common
stock will be converted into the right to receive $24.85 in cash, without
interest.
CONDITIONS TO THE MERGER (see pages 42-44)
Completion of the merger depends upon satisfaction of a number of
conditions. In addition to customary conditions relating to compliance with the
merger agreement, these conditions include, among others, the following:
- approval of the merger agreement by LG&E Energy's shareholders;
- approval of the merger agreement and other matters by PowerGen's
shareholders;
- the SEC authorizing the merger under the 1935 Act on terms and conditions
that do not adversely affect in any material respect the capital raising
or financing activities of PowerGen's non-U.S. subsidiaries or exert
jurisdiction over such entities other than as permitted in the merger
agreement;
- expiration or termination of the waiting period applicable to the merger
under U.S. federal antitrust laws and obtaining other regulatory
approvals, including approvals from the Kentucky Commission and Virginia
Commission;
- absence of any injunction or legal restraint prohibiting the merger; and
- absence of any material adverse effect on LG&E Energy and its subsidiaries
taken as a whole.
If the law permits, either we or PowerGen could choose to waive a condition
to our respective obligations to complete the merger even though that condition
has not been satisfied.
TERMINATION (see pages 44-45)
The merger agreement provides that either LG&E Energy or PowerGen may
terminate the merger agreement, whether before or after the approval of either
party's shareholders, as follows:
- by mutual agreement;
- if the merger is not completed by August 31, 2001 (or February 28, 2002,
if the only barrier to closing on August 31, 2001 is that the requisite
governmental and regulatory approvals have not been obtained);
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- if the shareholders of LG&E Energy or PowerGen fail to approve the merger
agreement or the shareholders of PowerGen fail to approve any necessary
increase in PowerGen's borrowing powers at the meeting at which the vote
is taken;
- if there is any law or regulation that makes the merger illegal, or if any
governmental authority issues a final, nonappealable order prohibiting the
merger;
- if the other party materially breaches any representation, warranty,
covenant or agreement in the merger agreement that is not curable and the
breach would result in a failure to satisfy the conditions to complete the
merger; and
- if the other party's board of directors withdraws or adversely modifies
its approval or recommendation of the merger agreement.
In addition, LG&E Energy may terminate the merger agreement in order to
enter into a superior proposal or if PowerGen fails to deliver the consideration
to be paid for LG&E Energy's shares at closing; and PowerGen may terminate the
merger agreement if LG&E Energy approves or recommends a superior proposal or if
any securities or assets are issued or delivered pursuant to the terms of the
LG&E Energy rights agreement.
TERMINATION FEE (see pages 45-46)
We have agreed to pay PowerGen $90 million as a termination fee and
reimburse PowerGen's costs and expenses up to $10 million:
- if we terminate the merger agreement to enter into a superior proposal
with a third party;
- if we have withdrawn or adversely modified our recommendation of the
merger agreement; or
- if shares or securities are issued or delivered pursuant to the terms of
our rights agreement.
Similarly, PowerGen has agreed to pay us $90 million and reimburse our costs
and expenses up to $10 million:
- if we terminate the merger agreement because PowerGen has withdrawn or
adversely modified its recommendation of the merger agreement; or
- if PowerGen fails to deliver the consideration to be paid for LG&E
Energy's shares.
In addition, we have agreed with PowerGen that, if either we or PowerGen
terminates the agreement because the other has materially breached the merger
agreement or because the other party's shareholders have not approved the merger
agreement, then the breaching party or the party whose shareholders did not
approve the merger agreement will immediately pay the other's costs and expenses
up to $10 million. Further, if the party required to reimburse the other's
expenses enters into an agreement or completes a transaction with a third party
within 18 months after termination, it will pay the other party a fee of
$90 million in certain circumstances.
Except as described above, whether or not the merger is completed, we and
PowerGen will each pay our own fees and expenses, except that we will divide
evenly the costs and expenses that have been incurred in printing and mailing
this proxy statement and the circular to be mailed by PowerGen to its
shareholders.
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MARKET PRICES OF LG&E ENERGY SHARES
LG&E Energy shares are listed and traded on the New York and Chicago Stock
Exchanges. The ticker symbol is "LGE." The newspaper stock exchange listings are
"LGE Energy" or "LGE EN." The following table gives information with respect to
price ranges, as reported via the "GPC" Screen by the Bloomberg L.P. information
service as New York Stock Exchange composite transactions, and dividends paid
for the periods shown.
<TABLE>
<CAPTION>
DIVIDEND HIGH LOW
PAID PRICE PRICE
-------- -------- --------
<S> <C> <C> <C>
1998
First Quarter............................................... 29 3/4CENTS $26 7/16 $23
Second Quarter.............................................. 29 3/4 27 3/4 24 11/16
Third Quarter............................................... 29 3/4 27 7/8 22 1/2
Fourth Quarter.............................................. 30 3/4 29 5/16 26 1/16
1999
First Quarter............................................... 30 3/4CENTS $28 3/4 $20 3/4
Second Quarter.............................................. 30 3/4 23 20 11/16
Third Quarter............................................... 30 3/4 23 11/16 20 11/16
Fourth Quarter.............................................. 31 3/4 23 5/16 17 3/8
2000
First Quarter (through March 3, 2000)....................... 31 3/4CENTS $22 3/8 $15 1/4
</TABLE>
On February 25, 2000, the last full trading day before the public
announcement of the execution of the merger agreement, the closing price per
share of LG&E Energy common stock was $15 3/4.
On , the most recent practicable date for which quotations were
available prior to the printing of this document, the closing price per share of
LG&E Energy common stock was $ .
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THE ANNUAL MEETING
PURPOSE, TIME AND PLACE
The LG&E Energy board of directors is soliciting proxies for use at the
annual meeting of LG&E Energy shareholders. The annual meeting will be held on
[MEETING DATE] at [MEETING TIME], local time, at [The Kentucky International
Convention Center (formerly the Commonwealth Convention Center), Third and
Market Streets, Louisville, Kentucky.] Except as otherwise noted, when we refer
in this proxy statement to the annual meeting, we are including any adjournments
or postponements of the annual meeting.
At the annual meeting, LG&E Energy shareholders will be asked to consider
and vote on a proposal to approve the merger agreement, a proposal to elect four
directors for three-year terms expiring in 2003, a proposal to approve and
ratify the appointment of Arthur Andersen LLP as independent auditors of LG&E
Energy for 2000, and such other business as may properly come before the
meeting.
RECORD DATE, VOTING POWER AND VOTE REQUIRED
Holders of record of shares of LG&E Energy common stock at the close of
business on [RECORD DATE], which we refer to in this document as the "record
date," will be entitled to notice of and to vote at the annual meeting. At the
close of business on the record date, [129,677,030] shares of LG&E Energy common
stock were issued and outstanding and entitled to vote.
Each outstanding share of LG&E Energy common stock is entitled to one vote
upon each matter presented at the annual meeting, except that shareholders have
cumulative voting rights with respect to the election of directors. In electing
directors, each shareholder is entitled to as many votes as the number of shares
of LG&E Energy 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.
A majority of the votes entitled to be cast by LG&E Energy shareholders,
present in person or by proxy, shall constitute a quorum for the transaction of
business at the annual meeting. Abstentions and "broker non-votes," which refer
to proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares as to a matter with respect to which brokers or nominees do not have
discretionary power to vote, will be considered present for the purpose of
establishing a quorum.
The affirmative vote of a majority of the votes entitled to be cast by the
LG&E Energy shareholders is required to approve the merger agreement. UNDER
APPLICABLE KENTUCKY LAW, IN DETERMINING WHETHER THE MERGER AGREEMENT HAS
RECEIVED THE REQUISITE NUMBER OF AFFIRMATIVE VOTES, ABSTENTIONS AND BROKER
NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES CAST AGAINST APPROVAL OF THE MERGER
AGREEMENT. Approval of the merger agreement is a condition to consummation of
the merger.
Directors are elected by a plurality of the votes cast by the LG&E Energy
shareholders represented at the annual meeting. "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 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 affirmative vote of a majority of shares of LG&E
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Energy common stock represented at the annual meeting is required for the
approval of the independent auditor. Abstentions from voting on such matter are
treated as votes against, while broker non-votes are treated as shares not
voted.
The annual meeting may be adjourned to another date and/or place for any
proper purpose (including for the purpose of soliciting additional proxies).
SHARE OWNERSHIP OF MANAGEMENT
The directors and executive officers of LG&E Energy, together with their
affiliates as a group, own beneficially approximately 1.25% of the issued and
outstanding shares of LG&E Energy common stock. No person holds of record or, to
the knowledge of LG&E Energy management, owns beneficially more than 5% of any
class of the outstanding voting securities of LG&E Energy.
STOCK OWNERSHIP PLANS
If you are a participant in one of our savings plans, referred to
collectively as the "Savings Plans," you will receive a Savings Plan voting
directive for shares allocated to your account under the Savings Plans. The
trustee for the Savings Plans will vote such shares as instructed by you in your
voting directive. If you do not return your voting directive, the trustee for
the Savings Plans will not vote your allocated Savings Plan shares.
If an LG&E Energy shareholder is a participant in the LG&E Energy Automatic
Dividend Reinvestment and Stock Purchase Plan, referred to as the "LG&E Energy
DRIP," the LG&E Energy proxy will represent the shares held on behalf of the
participant under the LG&E Energy DRIP and such shares will be voted in
accordance with the instructions on the LG&E Energy proxy. If a participant in
the LG&E Energy DRIP does not return an LG&E Energy proxy, the participant's
shares will not be voted.
VOTING OF PROXIES
Shares of LG&E Energy common stock may be voted either in person or by
properly executed proxy. By completing and returning the form of proxy, you
authorize the persons named therein to vote your shares on your behalf. Issued
and outstanding shares of LG&E Energy common stock, the holders of which are
entitled to vote at the annual meeting, which are represented by properly
executed proxies, will, unless such proxies have been revoked, be voted in the
manner specified in the proxies. You should be aware that, if no instructions
are indicated, such shares will be voted FOR approval of the merger agreement,
FOR the election of the four director nominees and FOR the approval of Arthur
Andersen LLP as independent auditors of LG&E Energy for 2000. We do not expect
that any matters other than the approval of the merger agreement, the election
of the four director nominees and the approval of Arthur Andersen LLP as
independent auditors of LG&E Energy for 2000 will be brought before the
shareholders at the annual meeting.
If you have LG&E Energy shares registered in different names, you will
receive a separate proxy card for each registration. All these shares will be
voted in accordance with the instructions on the proxy card. If your shares are
held by a broker as nominee, you will receive a voter information form from your
broker.
The appointment of a proxy on the enclosed proxy card does not preclude you
from revoking your proxy and voting in person.
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REVOCABILITY OF PROXIES
You may revoke a proxy at any time before its exercise by any of the
following methods:
(1) notifying in writing LG&E Energy Corp., 220 West Main Street,
Louisville, Kentucky 40202, Attention: John R. McCall, Secretary;
(2) completing a later-dated proxy and returning it to LG&E Energy's
shareholder services representative at Regina Forella, Automatic Data
Processing--Investor Communication Services, 51 Mercedes Way, Edgewood,
New York 11717, if you sent your original proxy there, or to your broker
if your shares are held by a broker; or
(3) appearing at the annual meeting in person and revoking your proxy orally
by notifying the Secretary before the vote takes place.
Simply attending the meeting, however, will not revoke your proxy.
Additional proxy cards are available from Regina Forella by calling
(631) 254-1836, or your broker, if your shares are held by a broker.
We do not expect to adjourn the annual meeting for a period of time long
enough to require the setting of a new record date for the annual meeting. If an
adjournment occurs, it will have no effect on the ability of LG&E Energy
shareholders of record as of the record date either to exercise their voting
rights or to revoke any previously delivered proxies.
SOLICITATION OF PROXIES
LG&E Energy and PowerGen will share equally 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 has
retained D.F. King & Co., Inc., a firm of professional proxy solicitors, to
assist in the solicitation at an estimated fee of $ plus an additional
$ to $ per shareholder contact and reimbursement of reasonable
expenses.
It is not expected that any matter not referred to herein will be presented
for action at the annual meeting. All matters to be submitted for action at the
annual meeting must comply with the advance notice provisions contained in LG&E
Energy's articles of incorporation and bylaws. If such matters are properly
brought before the annual meeting, the persons named in the proxies will have
discretion to vote on such matters in accordance with their best judgment. The
grant of a proxy will also confer discretionary authority on the persons named
in the proxy as proxy appointees to vote in accordance with their best judgment
on matters incident to the conduct of the annual meeting, including (except as
stated in the following sentence) postponement or adjournment for the purpose of
soliciting additional votes. However, shares represented by proxies that have
been voted AGAINST the merger agreement will not be used to vote FOR
postponement or adjournment of the annual meeting for the purposes of allowing
additional time for soliciting additional votes FOR the approval of the merger
agreement.
Holders of LG&E Energy common stock should not send their stock certificates
with their proxy cards. If the merger is completed, a separate letter of
transmittal will be mailed to you which will enable you to receive the
appropriate consideration.
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PROPOSAL NO. 1
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
The merger agreement provides that a subsidiary of PowerGen to be formed
will merge with and into LG&E Energy. LG&E Energy will be the surviving
corporation and will continue to conduct its businesses as an indirect, wholly
owned subsidiary of PowerGen. In the merger, each outstanding LG&E Energy share
of common stock (other than shares owned by LG&E Energy, PowerGen, or any of the
direct or indirect subsidiaries of LG&E Energy or PowerGen and those shares that
are held by LG&E Energy shareholders who have not voted in favor of the merger
and have properly asserted dissenters' rights) will be converted into the right
to receive $24.85 in cash, without interest.
The total value of the consideration that LG&E Energy shareholders will
receive in the merger, based on the number of LG&E Energy shares outstanding as
of , the latest practicable day prior to the printing of this proxy
statement is $ .
BACKGROUND
We believe that electric and gas utility companies will continue to
experience changes in the energy industry that will have a significant impact on
their future competitive position and their ability to improve earnings in
traditional regulated businesses. A number of factors are driving these changes,
including consumer pressure and federal and state initiatives aimed at
introducing greater competition in the wholesale and retail energy markets. Our
utility businesses historically have focused on providing our customers
continued, low-cost, reliable energy while maintaining high levels of customer
service. In fact, our two utility companies, LG&E and KU, are among the lowest
cost providers of electricity service in the United States, and they have been
recognized as leading utilities based upon customer satisfaction.
In recent years, we have attempted to enhance shareholder value through our
merger with KU Energy Company and through diversification efforts in which we
have pursued business opportunities in non-regulated businesses, such as the
lease of the Big Rivers generating facilities and our investments in independent
power plants, as well as through the ownership of interests in gas distribution
companies in Argentina.
At the time of the merger with KU Energy, we stated our belief that, as
competition intensifies in the industry, increased size and stability would be
crucial factors in overall business success. Increased size and financial
stability are important to deal effectively and decisively with current and
anticipated changes in the energy business and will help ensure the availability
of necessary resources to achieve growth objectives. We continue to believe
this, and as the pace of the merger and acquisition activity in our industry
attests, we are not alone in believing that increased size is important. We
believe that consolidation and globalization will be a continuing trend as
utilities attempt to position themselves for competition in a deregulated
environment.
Beginning well before our merger with KU Energy and continuing on
thereafter, our management and board have regularly analyzed various potential
strategic options and opportunities available to us. This analysis and review of
strategic options has included analysis of possible business combinations with
other utilities. Management periodically has briefed our board on the results of
such analyses.
Over the course of 1998, 1999 and 2000, members of LG&E Energy's senior
management have regularly analyzed various potential strategic options and
opportunities available to LG&E Energy.
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This analysis and review of strategic options led to discussions with a number
of potential transaction partners during this period, including PowerGen.
Throughout this period, the LG&E Energy Board was kept apprised of these
discussions, as well as the continued refinement of management's evaluation of
strategic alternatives, at both regularly scheduled and special LG&E Energy
Board meetings.
In March 1999, Mr. Peter Hickson, Finance Director of PowerGen, made an
initial phone call to Mr. Foster Duncan, at that time, Executive Vice President,
Planning & Development, and now, Executive Vice President and Chief Financial
Officer of LG&E Energy, to consider the prospects of a future combination
between the two entities.
After March 1999, there had been no further contact between the parties
until the end of September, when Mr. Hickson advised Mr. Duncan of PowerGen's
interest in initiating discussions with LG&E Energy regarding a possible
transaction. These discussions continued through September and October 1999.
Beginning in September 1999, and continuing on a regular basis thereafter, the
LG&E Energy Board was informed by LG&E Energy management about the status of all
negotiations and discussions with PowerGen.
Between August and October 1999, LG&E held extensive negotiations and
conducted extensive due diligence with two other public utilities that were
interested in pursuing a business combination, but these negotiations did not
lead to a firm offer or agreement to complete a transaction with LG&E Energy in
either case. The LG&E Energy board of directors was kept informed of these
discussions.
On November 1, 1999 and on several other occasions in November 1999 and
thereafter, Mr. Roger Hale, Chairman and Chief Executive Officer of LG&E Energy,
met with Mr. Ed Wallis, Chairman and Chief Executive of PowerGen, to discuss the
possible acquisition by PowerGen of LG&E Energy. In the course of these
conversations, Mr. Wallis discussed with Mr. Hale that LG&E Energy could be the
focus of PowerGen's U.S. operations. Mr. Wallis and Mr. Hale agreed that LG&E
Energy's headquarters would remain in Louisville, Kentucky. In addition,
Mr. Wallis advised Mr. Hale that the retention of LG&E Energy's senior
management team would be a condition to any business combination.
Messrs. Wallis and Hale also discussed and compared their companies' strategies
and visions for the future, including their personal management philosophies,
views on the changing competitive environment in the energy industry and each
entity's plans for growth in that environment, and concluded that the two
entities shared sufficiently compatible visions and goals to warrant exploratory
discussions.
As a result of assurances by Mr. Wallis that, subject to PowerGen's
performance of due diligence and the execution of definitive documentation, a
business combination in a price range that would be consistent with LG&E
Energy's expectations was a realistic possibility, Mr. Hale agreed to proceed
with entering into a confidentiality agreement and commencing due diligence and
negotiations.
On November 1, 1999, LG&E Energy and PowerGen executed a confidentiality
agreement and shortly thereafter representatives of PowerGen's management,
accountants, legal advisors and financial advisors commenced an initial due
diligence investigation of LG&E Energy's business and operations, which was held
at an off-site facility.
Beginning in November 1999 and continuing through most of February 2000,
representatives of management of LG&E Energy and PowerGen met and spoke by
telephone on numerous occasions to explore a possible transaction. During these
meetings and conversations, LG&E Energy and PowerGen representatives discussed
their companies' business and operations, the rationale for a potential business
combination, required regulatory approvals and the expected timing for and
likelihood of obtaining such approvals.
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On November 15, 1999, Mr. Hale received a letter from Mr. Wallis in which
Mr. Wallis confirmed to Mr. Hale that he would recommend to his board of
directors that PowerGen acquire LG&E Energy for a price representing a premium
over the closing price of LG&E Energy common stock on that date. This proposal
was subject to further negotiation, definitive documentation, detailed due
diligence, legal review and the approval of the board of directors of both LG&E
Energy and PowerGen.
On November 22, 1999, PowerGen provided to LG&E Energy an initial draft of a
proposed merger agreement pursuant to which PowerGen would acquire all of the
outstanding shares of LG&E Energy common stock. On December 15, 1999, legal
counsel and management for LG&E Energy and PowerGen commenced negotiations with
respect to the terms of the proposed merger agreement. Over the course of the
following two months, legal counsel and management met on several occasions and
held numerous telephone conversations to continue to negotiate the potential
terms of the proposed acquisition.
On December 21, 1999, LG&E Energy announced that it had received an adverse
order from the arbitration panel considering its contract dispute with
Oglethorpe Power Corporation, referred to as "OPC", as a result of which LG&E
Energy increased its fourth quarter 1999 after-tax accrued loss on disposal of
discontinued operations by $175 million. On January 7, 2000, the Kentucky Public
Service Commission ordered that LG&E and KU reduce their pretax earnings
effective March 1, 2000 by a combined approximately $64 million per year,
representing more than 20% of the utilities' income.
During January and February 2000, the companies conducted detailed due
diligence, including with respect to the OPC arbitration, the Kentucky PSC
hearings, LG&E Energy's energy marketing business and trading policies and
PowerGen's ability to finance the proposed acquisition.
On January 21, 2000, LG&E Energy retained the services of The Blackstone
Group L.P., as its financial advisor, to assist LG&E Energy in reviewing any
formal proposals it might receive from PowerGen.
On January 26, 2000, Mr. Hale, Mr. Victor Staffieri, President and Chief
Operating Officer of LG&E Energy, Mr. John McCall, Executive Vice President,
General Counsel and Corporate Secretary of LG&E Energy, Mr. Duncan and Mr. Fred
Newton, Executive Vice President and Director of Human Resources of LG&E Energy,
met with Mr. Wallis, Mr. Hickson, Ms. Caroline Sheers, Director of Mergers and
Acquisitions of PowerGen, Mr. David Jackson, Company Secretary and General
Counsel of PowerGen and Mr. John Hart, Group Personnel Director of PowerGen at
London's Gatwick airport to discuss valuations and other business issues. The
meeting concluded with PowerGen and LG&E Energy indicating their respective
valuations, which PowerGen believed to be in the low to mid twenties and LG&E
Energy believed to be in the mid to high twenties; however, no agreement on
price was reached at this time.
On January 28, 2000, the LG&E Energy Board held a telephonic meeting at
which Mr. Hale reviewed for the LG&E Energy Board the status of the discussions
with PowerGen. After presentations by members of the senior management of LG&E
Energy, the LG&E Energy Board authorized management to continue its discussions
with PowerGen.
Discussions with PowerGen continued between the end of January through
February with the parties' views on valuation coming closer together.
At a regularly scheduled meeting of the LG&E Energy Board held on
February 2, 2000, LG&E Energy's management further reviewed for the LG&E Energy
Board the proposed transaction with PowerGen. Mr. Hale provided a detailed
history of LG&E Energy's discussions with PowerGen and reviewed the current
status of those discussions, including a description of open business issues and
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issues relating to a valuation of LG&E Energy. Representatives of The Blackstone
Group L.P. presented a report to the LG&E Energy Board which included a
discussion of the financial markets generally, the utility industry and an
analysis of LG&E Energy's value. Mr. McCall and Mr. Duncan described the
proposed terms of the merger agreement and the likelihood of obtaining the
required regulatory approvals. Also, Mr. Richard Beattie, of Simpson Thacher &
Bartlett, counsel for LG&E Energy, reviewed for the directors their fiduciary
duties and certain terms of the proposed transaction. After a lengthy
discussion, the LG&E Energy Board authorized management to continue its
negotiations with PowerGen.
During the month of February, members of management of LG&E Energy and
PowerGen and their legal advisors continued to negotiate the terms of the merger
agreement. The terms of new employment agreements for Messrs. Hale, McCall, and
Duncan, Mr. Staffieri and Mr. Newton, pursuant to which such individuals would
agree to remain employed by PowerGen following the merger, also were negotiated
during this period.
On February 9, 2000, the LG&E Energy Board held a meeting for the purpose of
adopting a budget for the 2000 fiscal year and addressing other business issues.
At this meeting, Mr. Hale, Mr. Duncan and Mr. McCall gave a report on the status
of the proposed PowerGen transaction and the open business and legal issues.
Mr. Hale and Mr. Wallis had extensive conversations during the week of
February 14th in an effort to agree on the appropriate transaction values.
At the special meeting of PowerGen's board of directors on
February 13, 2000 after detailed presentations from PowerGen's staff and
advisors, PowerGen's board of directors approved the merger and established a
committee to take all further necessary actions.
On February 20, 2000, Messrs. McCall, Duncan and Staffieri met in London
with Mr. Hickson, Mr. Jackson, Ms. Sheers, and Mr. Hart to discuss open business
and legal issues, including conditions to closing, termination rights and
termination fees and the price to be paid for the LG&E Energy shares.
Mr. McCall remained in London following this meeting to negotiate other
provisions of the merger agreement. On February 22, Mr. Hale returned to London
for further discussion with Mr. Wallis regarding value, interim operating
agreements and employment contracts.
Between February 21 and February 25, 2000, LG&E Energy Corp., assisted by
Simpson Thacher & Bartlett and Gardner, Carton & Douglas, continued negotiations
with PowerGen and its counsel, Sullivan and Cromwell, of the terms and
conditions of the merger agreement and the employment agreements for senior
management.
During the week of February 21, 2000 management of both companies agreed to
recommend that their respective boards approve the cash purchase price of $24.85
for each issued and outstanding share of LG&E Energy common stock.
A special meeting of the LG&E Energy Board to consider the proposed
transaction was held on February 25, 2000 in Louisville, Kentucky. At the
meeting, the terms and conditions of the proposed transaction were reviewed in
detail by LG&E Energy management and legal counsel, including Mr. McCall and
Mr. Beattie of Simpson Thacher & Bartlett. LG&E Energy management and financial
advisors also described the benefits of and rationale for the transaction.
Representatives of Blackstone made a detailed financial presentation to the LG&E
Energy Board regarding the proposed transaction and advised the LG&E Energy
Board that, in Blackstone's opinion, as of February 25, 2000 and based upon and
subject to the factors and assumptions described in their presentation, the
price of $24.85 per share of LG&E Energy common stock was fair to holders of
LG&E Energy common stock from a
16
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financial point of view. Extensive discussion and numerous questions from LG&E
Energy Board members followed the presentations. After considering the matters
described below under "REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF
DIRECTORS," and the fact that the price of $24.85 per share represented a
premium of 58% over the closing price on February 25, the last trading day
before the deal was announced, the LG&E Energy Board concluded that the merger
is advisable to, and in the best interests, of LG&E Energy shareholders and
approved the merger agreement.
At a meeting of the committee of the PowerGen board of directors on
February 25, 2000, the acquisition of LG&E Energy at a price of $24.85 per share
of LG&E Energy common stock was approved.
The parties executed the merger agreement on the afternoon of February 27,
2000 and, on February 28, 2000, LG&E Energy announced that they had entered into
the merger agreement.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Our board of directors consulted with management and The Blackstone Group
L.P. in determining to adopt the merger agreement and in reaching the board of
directors' determination that the merger is advisable to, and in the best
interests of, LG&E Energy shareholders. The board of directors considered a
number of factors, including without limitation, the following:
- its review and analysis of our business, financial condition, earnings and
prospects, as well as the competitive and changing regulatory environment
facing us;
- the potential erosion of shareholder value resulting from deregulation and
regulatory risks faced by us, utility industry consolidation and our
growth prospects;
- historical market prices and trading information with respect to our
shares, the price per share offered by PowerGen and the certainty of value
provided by the cash consideration;
- a review of the possible alternatives to a sale of LG&E Energy in its
entirety, including the prospects of continuing to operate LG&E Energy,
the value to shareholders of these alternatives, and the timing and
likelihood of actually achieving additional value from these alternatives,
along with the possibility that our future performance might not lead to a
stock price in the foreseeable future that would have as high a present
value as the merger consideration;
- the fact that the $24.85 per share consideration to be paid in the merger
represented a premium for the LG&E Energy shares of approximately 58% over
the closing price of $15.75 per share on February 25, 2000, which was the
last trading day prior to the public announcement of the execution of the
merger agreement;
- the financial analyses performed by The Blackstone Group L.P. and its
opinion to the LG&E Energy board of directors dated February 27, 2000 as
to the fairness of the merger consideration from a financial point of view
to the LG&E Energy shareholders as described in "THE MERGER--OPINION OF
FINANCIAL ADVISOR TO THE LG&E ENERGY BOARD;"
- the terms of the merger agreement, including the right of the LG&E Energy
board of directors to terminate the merger agreement prior to obtaining
the approval of the holders of LG&E Energy common stock in the exercise of
its fiduciary duty in connection with the receipt by LG&E Energy of a
proposal superior to the merger;
- the anticipated positive impact of the merger on employees and other
constituencies, including LG&E's and KU's ability to maintain their high
quality service and low rates to their customers, the expanded
opportunities for employees as part of a major global energy company and
LG&E Energy's ability to continue as a major sponsor of various
educational, civic and cultural initiatives in Kentucky; and
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- the likelihood of completion of the merger, including an assessment that
PowerGen has the financial capability to pay the merger consideration, and
an assessment of the risks associated with obtaining necessary approvals,
regulatory and otherwise.
The discussion above of the information and factors that the board of
directors considered is not exhaustive. In determining to recommend the approval
of the merger agreement, the board of directors also considered that the merger
was in the best interests of our employees, customers and the communities in
which we serve. In view of the wide variety of factors considered, the board of
directors did not quantify or assign relative weights to the factors above, and
different directors may have given different weight to different factors.
Rather, the board of directors based its recommendation on the totality of the
information presented to and considered by it.
THE LG&E ENERGY BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS
ADVISABLE TO, AND IN THE BEST INTERESTS OF, LG&E ENERGY SHAREHOLDERS AND HAS
ADOPTED THE MERGER AGREEMENT. THE LG&E ENERGY BOARD OF DIRECTORS RECOMMENDS THAT
LG&E ENERGY SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO THE LG&E ENERGY BOARD
On February 25, 2000, The Blackstone Group L.P., referred to as
"Blackstone," delivered its oral opinion (which opinion was subsequently
confirmed by delivery of a written opinion dated February 27, 2000) to the LG&E
Energy board of directors to the effect that, as of that date, and based upon
the assumptions made, matters considered and limits of review set forth in the
opinion, the consideration of $24.85 per share to be received by the holders of
LG&E Energy common stock in the merger was fair from a financial point of view
to such holders. References in this proxy statement to the "Blackstone Opinion"
refer to the written opinion of The Blackstone Group L.P. as of February 27,
2000.
A COPY OF THE BLACKSTONE OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY
BLACKSTONE, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT. EACH HOLDER OF
LG&E ENERGY COMMON STOCK IS URGED TO READ THAT OPINION IN ITS ENTIRETY. THE
BLACKSTONE OPINION WAS INTENDED FOR THE USE AND BENEFIT OF THE LG&E ENERGY BOARD
OF DIRECTORS, WAS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW
OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF LG&E ENERGY'S COMMON
STOCK, DID NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY LG&E ENERGY TO
ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY LG&E ENERGY
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE ANNUAL MEETING. THE
MERGER CONSIDERATION WAS DETERMINED ON THE BASIS OF NEGOTIATIONS BETWEEN LG&E
ENERGY AND POWERGEN AND WAS APPROVED BY THE LG&E ENERGY BOARD OF DIRECTORS. THE
SUMMARY OF THE BLACKSTONE OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE BLACKSTONE OPINION, WHICH
IS ATTACHED AS APPENDIX B.
In arriving at its opinion, Blackstone has:
1. Reviewed certain publicly available information concerning the business,
financial condition and operations of LG&E Energy and PowerGen;
2. Reviewed certain internal financial analyses and forecasts relating to
LG&E Energy prepared by, and furnished to Blackstone by, LG&E Energy
management;
3. Held discussions with members of management of LG&E Energy;
4. Reviewed the historical market prices and trading activity for LG&E
Energy common stock;
5. Compared certain financial and stock market information for LG&E Energy
with similar information for certain other utility companies, the
securities of which are publicly traded;
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6. Reviewed the financial terms of certain recent business combinations in
the electric utility industry;
7. Reviewed the merger agreement; and
8. Performed such other studies and analyses, and taken into account such
other matters, as Blackstone deemed appropriate.
In arriving at its opinion, Blackstone has relied without independent
verification upon the accuracy and completeness of all of the financial and
other information reviewed by Blackstone that was publicly available, that was
supplied or otherwise made available to Blackstone by LG&E Energy or PowerGen or
that was otherwise reviewed by Blackstone. Without limiting the generality of
the foregoing, Blackstone has assumed that the financial forecasts and the
estimates prepared by LG&E Energy and provided to Blackstone have been
reasonably determined on a basis reflecting the best currently available
judgments and estimates of LG&E Energy, and that such forecasts and such
estimates will be realized in the amounts and at the times contemplated thereby.
Blackstone has further relied upon the assurances of the management of LG&E
Energy that they are not aware of any facts that would make such information
inaccurate, incomplete or misleading. Blackstone has also relied on PowerGen's
representation in the merger agreement regarding its ability to finance the
merger and has not independently analyzed that ability. In addition, Blackstone
has not (1) reviewed internal business plans or financial projections from
PowerGen relating to PowerGen's future financial performance; (2) conducted a
physical inspection of the properties and facilities, of the sales, marketing,
distribution and service organizations, or of the product markets of LG&E
Energy; (3) made an independent evaluation or appraisal of the assets and
liabilities of LG&E Energy; or (4) independently evaluated the potential future
financial impact on LG&E Energy associated with performance based rate-making,
the power supply contract with Oglethorpe Power Corporation or nitrous
oxide-related capital spending.
Blackstone has not considered the relative merits of the merger as compared
to any other business plan or opportunity that might be available to LG&E Energy
or the effect of any other arrangement in which LG&E Energy might engage, except
that Blackstone is aware of discussions that LG&E Energy has had over the last
year with other potential transaction partners. Blackstone has assumed that the
merger and the other transactions contemplated by the merger agreement will be
consummated on substantially the terms set forth in the merger agreement. The
Blackstone opinion is necessarily based upon economic, market, monetary,
regulatory and other conditions as they existed and could be evaluated, and the
information made available to Blackstone, as of the date of its opinion. It
should be understood that Blackstone does not have any obligation to update,
revise or reaffirm the Blackstone opinion. Furthermore, Blackstone expresses no
opinion as to the prices or trading ranges at which LG&E Energy's common stock
will trade at any time.
The following is a summary of the material financial and comparative
analyses performed by Blackstone in connection with its opinion.
HISTORICAL TRADING STUDIES
Blackstone reviewed certain historical stock price and price-to-earnings
("P/E") multiple information for LG&E Energy. This review indicated that for the
one-year, three-year and five-year periods ended February 23, 2000, the average
per share closing prices of LG&E Energy common stock were $21.07, $23.59 and
$22.68, respectively. LG&E Energy's average current fiscal year ("CFY") P/E
ratios, based on Institutional Brokers Estimate System ("IBES") earnings
estimates, for the one-year, three-year and five-year periods ended
February 23, 2000 were 11.7x, 14.0x and 14.1x, respectively. Additionally, the
average CFY P/E ratios of LG&E Energy's common stock relative to the S&P
Electric Utility Index CFY P/E ratio ("Relative P/E Multiple") for the one-year,
three-year and five-year
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periods ended February 23, 2000 were 0.85x, 1.01x and 1.08x, respectively.
Blackstone also compared these prices and multiples to the offer price, CFY P/E
multiples and Relative P/E Multiples implied by the merger: offer price of
$24.85; CFY P/E multiple range of 14.2x--14.6x based on management and IBES EPS
estimates and a Relative P/E Multiple range of 1.28x--1.32x based on management
and IBES EPS estimates.
PUBLICLY TRADED COMPARABLE COMPANY ANALYSIS
Using publicly available information, Blackstone compared certain financial
and operating information and ratios (described below) for LG&E Energy with the
corresponding financial and operating information and ratios for a group of
publicly traded companies that Blackstone deemed to be reasonably comparable to
LG&E Energy. The companies included in the analysis were: Allegheny
Energy, Inc., Cinergy Corp., DPL, Inc., IPALCO Enterprises, Inc., NiSource Inc.
and OGE Energy Corp. (collectively, the "LG&E Energy Comparables"). In arriving
at the comparable multiple ranges, Blackstone excluded certain multiples which
were deemed to be outliers from the sample.
Blackstone derived estimated valuation ranges for LG&E Energy by comparing
as of February 23, 2000:
1. Current trading value as a multiple of projected 2000 earnings per share
("EPS") for the LG&E Energy Comparables, which estimates were obtained
from IBES (as of February 23, 2000), and ranged from 8.7x to 13.6x, with
a mean of 10.2x. For purposes of the valuation analysis, the high end of
the comparable company range was eliminated, resulting in a multiple
range of 8.7x to 10.7x;
2. Current trading value as a multiple of projected 2001 EPS for the LG&E
Energy Comparables, which estimates were obtained from IBES (as of
February 23, 2000), and ranged from 7.8x to 12.1x, with a mean of 9.4x.
For purposes of the valuation analysis, the high end of the comparable
company range was eliminated, resulting in a multiple range of 7.8x to
9.7x;
3. Current trading value as a multiple of book value per share for the LG&E
Energy Comparables, which ranged from 1.3x to 3.7x, with a mean of 2.0x.
For purposes of the valuation analysis, the high end of the comparable
company range was eliminated, resulting in a multiple range of 1.3x to
2.5x; and
4. Total enterprise value (defined as market capitalization of the common
equity as of February 23, 2000 plus book value of net debt, preferred
equity and minority interests) ("TEV") as a multiple of latest twelve
months ("LTM") earnings before interest, taxes, depreciation and
amortization ("EBITDA"). Such multiples ranged from 5.9x to 8.8x, with a
mean of 6.9x. For purposes of the valuation analysis, the high end of the
comparable company range was eliminated, resulting in a multiple range of
5.9x to 6.7x.
Based upon the foregoing analyses, Blackstone calculated an estimated per
share value range for LG&E Energy's common stock of $11.89 to $21.75.
DISCOUNTED CASH FLOW ANALYSIS
Blackstone derived an estimated per share equity valuation range for LG&E
Energy by performing a discounted cash flow ("DCF") analysis. To perform this
DCF analysis, Blackstone analyzed the cash flows related to LG&E Energy's
operations for the period 2000 - 2004.
The DCF was calculated assuming discount rates ranging from 6.5% to 7.5% and
was comprised of the sum of the present values of (1) the projected unlevered
free cash flows for the years 2000 to 2004 using projections provided by LG&E
Energy management and (2) the year 2004 terminal value based upon a range of
multiples of projected year 2004 EBITDA of 6.5x to 8.0x.
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This analysis resulted in an aggregate implied equity value per share of
LG&E Energy's common stock (net of outstanding debt) that ranged from $17.36 to
$26.39.
DISCOUNTED DIVIDEND ANALYSIS
Blackstone performed a discounted dividend analysis based upon estimates of
projected dividend payouts prepared by LG&E Energy management for the fiscal
years from 2000 to 2004. Utilizing these projections, Blackstone calculated a
range of present values for LG&E Energy's common stock based upon the discounted
net present value of the sum of (1) the projected stream of common stock
dividends per share from the year 2000 to the year 2004 and (2) a terminal value
based upon a growing perpetuity calculation. Applying equity discount rates
ranging from 9.0% to 10.0% and terminal dividend growth rates ranging from 3.0%
to 4.0%, this analysis produced a per share range of values of LG&E Energy's
common stock of $19.90 to $26.84.
COMPARABLE TRANSACTION ANALYSIS
Blackstone reviewed certain publicly available information regarding 22
selected business combinations in the utility industry announced since
January 1995 (collectively, the "Comparable Transactions") that Blackstone
deemed relevant in evaluating the merger. The Comparable Transactions and the
dates these transactions were announced are as follows:
1. Portland General Corporation and Sierra Pacific Resources
(November 1999);
2. MidAmerican Energy Holdings Company and Berkshire Hathaway, Inc.
(October 1999);
3. Northeast Utilities and Consolidated Edison, Inc. (October 1999);
4. Florida Progress Corporation and Carolina Power & Light Company
(August 1999);
5. CMP Group, Inc. and Energy East Corporation (June 1999);
6. TNP Enterprises, Inc. and an Investor Group led by Dr. William J.
Catacosinos and the Canadian Imperial Bank of Commerce (May 1999);
7. The Empire District Electric Company and Utilicorp United, Inc.
(May 1999);
8. St. Joseph Light & Power Company and Utilicorp United, Inc.
(March 1999);
9. Eastern Utilities Associates and New England Electric System
(February 1999);
10. New England Electric System and National Grid Group plc
(December 1998);
11. PacifiCorp and ScottishPower plc (December 1998);
12. CILCORP Inc. and The AES Corporation (November 1998);
13. MidAmerican Energy Holdings Company and CalEnergy Company, Inc.
(August 1998);
14. Orange and Rockland Utilities, Inc. and Consolidated Edison, Inc.
(May 1998);
15. Central and South West Corporation and American Electric Power
Company, Inc. (December 1997);
16. KU Energy Corporation and LG&E Energy Corp. (May 1997);
17. Long Island Lighting Company and Brooklyn Union Gas Company
(December 1996);
18. Centerior Energy Corporation and Ohio Edison Company (September 1996);
19. IES Industries, Inc. and WPL Holdings, Inc. (August 1996);
20. Portland General Corporation and Enron Corp. (July 1996);
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21. Interstate Power Company and WPL Holdings, Inc. (November 1995); and
22. CIPSCO Incorporated and Union Electric Company (August 1995).
With respect to the Comparable Transactions, Blackstone analyzed:
1. The per share offer price as a percentage premium to the stock price of
the acquired company two weeks prior to the date of announcement (the
"Acquisition Premium");
2. The per share offer price as a multiple of the CFY estimated EPS of the
acquired company at the date of announcement;
3. The per share offer price as a multiple of the next fiscal year's EPS
("NFY EPS") of the acquired company at the date of announcement;
4. The Relative P/E Multiple (based on the per share offer price) at the
date of announcement;
5. The total market value of the common equity (defined as the per share
offer price for the acquired company multiplied by the number of acquired
company fully-diluted shares outstanding) as a multiple of the book value
of the common equity of the acquired company at the date of the
announcement; and
6. The total transaction value (total market value of the common equity
plus the book value of assumed net debt, preferred equity and minority
interests) as a multiple of the acquired company's LTM EBITDA.
The results of these analyses are summarized below. In arriving at the
comparable multiple ranges, Blackstone excluded certain multiples which were
deemed to be outliers from the sample.
1. The acquisition premiums for such transactions ranged from 15.3% to
46.6%, with a mean of 32.4%;
2. The multiples of per share offer price to CFY EPS ranged from 11.2x to
28.8x, with a mean of 17.5x. For purposes of the valuation analysis, the
high end of the Comparable Transactions range was eliminated, resulting
in a multiple range of 11.2x to 21.7x;
3. The multiples of per share offer price to NFY EPS ranged from 10.5x to
20.7x with a mean of 16.3x;
4. The Relative P/E Multiples ranged from 0.96x to 1.59x with a mean of
1.24x;
5. The multiples of the total market value of the common equity to book
value of the common equity ranged from 0.8x to 2.7x, with a mean of 1.9x.
For purposes of the valuation analysis, the low end of the Comparable
Transactions range was eliminated, resulting in a multiple range of 1.3x
to 2.7x; and
6. The multiples of total transaction value to LTM EBITDA ranged from 6.1x
to 10.3x with a mean of 7.9x.
Based upon the foregoing analyses, Blackstone calculated an estimated per
share value range for LG&E Energy's common stock of $11.47 to $40.11.
The summary set forth above does not purport to be a complete description of
the analyses performed by Blackstone in arriving at its opinion. The preparation
of a fairness opinion is a complex process and is not necessarily susceptible to
partial or summary description. Blackstone believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all those factors and analyses,
could create a misleading view of the processes underlying the Blackstone
Opinion. Blackstone did not assign relative weights to any of
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its analyses in preparing the Blackstone Opinion. The matters considered by
Blackstone in its analyses were based on numerous macroeconomic, operating and
financial assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond LG&E Energy's
and Blackstone's control and involve the application of complex methodologies
and educated judgment. Estimates contained in the analyses performed by
Blackstone are not necessarily indicative of actual past or future results or
values, which may be significantly more or less favorable than such estimates.
Estimated values do not purport to be appraisals and do not necessarily reflect
the prices at which businesses or companies may be sold in the future, and such
estimates are inherently subject to uncertainty.
None of the LG&E Energy Comparables utilized as a comparison in the analyses
described above are identical to LG&E Energy, and none of the Comparable
Transactions utilized as a comparison are identical to the proposed merger. In
addition, various analyses performed by Blackstone incorporate projections
prepared by research analysts using only publicly available information. Such
estimates may or may not prove to be accurate. An analysis of publicly traded
comparable companies and comparable business combinations is not mathematical;
rather it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared. In addition, many of the comparable
business combinations occurred at a time when the S&P Electric Utility Index was
at a higher price than current levels.
The LG&E Energy board of directors retained Blackstone because of its
experience and expertise. Blackstone has an internationally recognized merger
and acquisition advisory business. Blackstone, as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions. Blackstone is familiar
with LG&E Energy, having provided certain investment banking services to LG&E
Energy from time to time and has acted as its financial advisor in connection
with the merger.
In accordance with a letter agreement between LG&E Energy and Blackstone
dated as of January 21, 2000, LG&E Energy has agreed to pay Blackstone a fee of
0.35% of the product of (1) the number of shares of LG&E Energy's common stock
outstanding at the closing of the merger and (2) $24.85 (the "Merger Fee"). The
Merger Fee is payable in three installments as follows: (a) 25% following the
execution of the merger agreement, (b) 25% upon the approval of the merger by
LG&E Energy's shareholders, and (c) any remaining unpaid portion upon the
closing of the merger. LG&E Energy has also agreed to reimburse Blackstone for
its reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of legal counsel) and to indemnify Blackstone and certain related
parties from and against certain liabilities, including liabilities under the
federal securities laws arising out of its engagement.
Blackstone has, in the past, provided financial advisory services to LG&E
Energy and/or its affiliates and may continue to do so, and has received, and
may continue to receive, fees for the rendering of such services.
EFFECTIVE TIME OF THE MERGER
The merger will become effective when the parties to the merger agreement
file articles of merger with the Secretary of State of the Commonwealth of
Kentucky in accordance with the Kentucky Business Corporation Act. The merger
will not become effective before the date of the annual meeting. If the merger
agreement is approved at the annual meeting, the effective time will occur as
promptly as possible after satisfaction or waiver of the remaining conditions to
the merger contained in the merger agreement, including the receipt of
regulatory approvals, which we currently expect will be
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approximately nine to twelve months after the date of the merger agreement,
although no assurances can be given.
DIRECTORS AND OFFICERS
DIRECTORS. For three years after the merger is completed, the board of
directors of the surviving corporation will consist of two directors of Merger
Sub and one individual who was a director or officer of LG&E Energy prior to the
effective time. These directors will hold office until their successors are duly
elected or appointed and qualified. Also, those individuals serving on the board
of directors of LG&E Energy at the time the merger becomes effective will serve
on a U.S. advisory board.
OFFICERS. Following the merger, Roger W. Hale will remain the Chairman and
Chief Executive Officer of LG&E Energy (which will be a subsidiary of PowerGen).
The other current officers of LG&E Energy are entitled, under the merger
agreement, to remain as officers after the merger until their successors are
duly elected or appointed and qualified.
REGULATORY MATTERS
The merger agreement provides that both we and PowerGen will use our
respective reasonable best efforts to take all actions, and do or cause to be
done all things, necessary, proper or advisable to complete the merger and the
other transactions contemplated by the merger agreement as soon as practicable.
This includes preparing and filing all required documentation and obtaining all
consents, registrations, approvals, permits and authorizations necessary or
advisable to be obtained from any third party and/or governmental entity in
order to complete the merger. Although there can be no guarantee that we will
obtain the requisite consents or approvals on a timely basis, or at all, we
currently believe that the necessary approvals can be obtained in sufficient
time to allow the merger to be completed in a period of nine to twelve months
from the date of the merger agreement. The completion of the merger is
conditioned upon the expiration of applicable federal and state waiting periods
and the receipt of all governmental consents except for those the failure of
which to obtain would not have a material adverse effect on either us or
PowerGen. In addition, completion of the merger is conditioned on receipt of an
order from the SEC authorizing the merger and the other related matters, as
described below.
Either we or PowerGen may terminate the merger agreement if the merger has
not been completed by August 31, 2001, although we have agreed to extend such
date until February 28, 2002 in order to obtain regulatory consents and
approvals that have not been obtained by August 31, 2001.
STATE APPROVALS AND RELATED MATTERS. LG&E is currently subject to the
jurisdiction of the Kentucky Commission. KU is currently subject to the
jurisdiction of the Kentucky Commission, the Virginia Commission and the
Tennessee Regulatory Authority, referred to as the "Tennessee Authority."
Applications for approval of the merger and related transactions are
expected to be filed in March 2000 with the Kentucky Commission and the Virginia
Commission. A notice filing will be made with the Tennessee Authority.
Assuming the requisite regulatory approvals are obtained, LG&E's retail
utility operations will remain subject to regulation by the Kentucky Commission
and the retail utility operations of KU will remain subject to regulation by the
Kentucky Commission, the Virginia Commission and the Tennessee Authority.
The Kentucky Commission must find that the acquiror has the financial,
technical, and managerial abilities to provide "reasonable service" and that a
change in control is "consistent with the public
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interest." The Virginia Commission approval must be based on a finding that
"adequate service to the public at just and reasonable rates will not be
impaired or jeopardized" by the acquisition.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935. Section 9(a)(2) of the 1935 Act
provides that it is unlawful, without the prior approval of the SEC, for any
person to acquire any security of any public utility company if that person
already owns 5% or more of the voting securities of another public utility
company, or will by virtue of that transaction come to own 5% or more of the
voting securities of two or more public utility companies. As a result of the
merger, PowerGen, which is not currently registered under the 1935 Act, will be
deemed to acquire indirectly all of the common shares of LG&E and KU.
Accordingly, PowerGen is required to obtain prior SEC approval under
Section 9(a)(2) of the 1935 Act to consummate the merger. It is currently
expected that PowerGen will file an application for approval of the merger with
the SEC prior to the annual meeting. Under the applicable standards of the 1935
Act, the SEC is directed to approve a proposed acquisition unless it finds that:
(1) the acquisition would tend towards detrimental interlocking relations or
a detrimental concentration of control;
(2) the consideration to be paid in connection with the acquisition is not
reasonable;
(3) the acquisition would unduly complicate the capital structure of the
applicant's holding company system or would be detrimental to the proper
functioning of the applicant's holding company system; or
(4) the acquisition would violate applicable state law.
In order to approve a proposed acquisition, the SEC also must find that the
acquisition would tend towards the development of an integrated public utility
system and would otherwise conform to the 1935 Act's integration and corporate
simplification standards.
The merger agreement provides that it is a condition to PowerGen's
obligation to complete the merger that the SEC issue an order authorizing the
merger, the financing for the merger and other matters related thereto, which
orders do not contain any terms or conditions that:
(1) adversely affect in any material respect the financing or capital
raising activities of any of PowerGen's non-U.S. subsidiaries that
qualify as a "foreign utility company" under the 1935 Act; or
(2) provide for SEC jurisdiction over such non-U.S. subsidiaries under the
1935 Act other than any jurisdiction substantially similar to publicly
available actions of the SEC prior to the date of the merger agreement.
In making the determination of whether the SEC order adversely affects in
any material respect the financing or capital raising activities of PowerGen's
non-U.S. subsidiaries, we and PowerGen have agreed that effects arising from the
following will not be considered:
(1) PowerGen's obligation to maintain or achieve a debt to equity ratio (on
a consolidated basis) of not less than 70 percent to 30 percent;
(2) investment limits in energy-related companies applicable to PowerGen
pursuant to SEC Rule 58;
(3) limitations on PowerGen's ability to provide guarantees, equity
contributions or other credit support to such non-U.S. subsidiaries
without the SEC's prior approval; and
(4) any financial or other commitments PowerGen agrees to in making its
application(s) under the 1935 Act associated with the merger.
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Although LG&E Energy and PowerGen believe that SEC approval of the merger under
the 1935 Act will be obtained, it is not possible to predict with certainty the
timing of such approval and whether the approval will be on terms that satisfy
PowerGen's condition to complete the merger.
FEDERAL POWER ACT. Section 203 of the Federal Power Act provides that no
public utility shall sell or otherwise dispose of its jurisdictional facilities
or, directly or indirectly, merge or consolidate such facilities with those of
any other person or acquire any security of any other public utility without
first having obtained authorization from the FERC. Because the merger involves a
change in ownership and control of our public utility subsidiaries, the approval
of the FERC is required in order to consummate the merger. Under Section 203 of
the Federal Power Act, the FERC will approve a merger if it finds the merger
"consistent with the public interest." In reviewing a merger, the FERC generally
evaluates:
(1) the effect of the merger on competition;
(2) the effect of the merger on rates; and
(3) the effect of the merger on state and federal regulation of the
applicants.
LG&E Energy and PowerGen will file, at the earliest practicable date, an
application with the FERC requesting that the FERC approve the merger under
Section 203 of the Federal Power Act.
ANTITRUST CONSIDERATIONS. The HSR Act and the rules and regulations
promulgated thereunder provide that transactions such as the merger may not be
consummated until information has been submitted to the Antitrust Division of
the Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") and specified HSR Act waiting period requirements have
been satisfied. The expiration or earlier termination of the HSR Act waiting
period does not preclude the Antitrust Division or the FTC from challenging the
merger on antitrust grounds. LG&E Energy and PowerGen intend to file their
premerger notification pursuant to the HSR Act in the second quarter of 2000.
EXON-FLORIO. The Committee on Foreign Investment in the United States
("CFIUS") may review and investigate the merger under Exon-Florio, and the
President of the United States or his designee is empowered to take certain
actions in relation to mergers, acquisitions and takeovers by foreign persons
which could result in foreign control of persons engaged in interstate commerce
in the United States pursuant to Exon-Florio. In particular, Exon-Florio enables
the President to block or reverse any acquisitions by foreign persons which
threaten to impair the national security of the United States. Any determination
that an investigation is called for must be made within 30 days of notice of the
proposed transaction. In the event such a determination is made, any such
investigation must be completed within 45 days of such determination.
Thereafter, any decision to take action must be announced within 15 days of
completion of the investigation. We and PowerGen will make a voluntary filing to
CFIUS seeking a finding that the merger does not impair the national security of
the United States.
UK APPROVALS. Under the UK Fair Trading Act 1973, referred to as the "FTA,"
the UK merger regime is a voluntary regime. PowerGen believes that the merger
will have no impact on UK markets and, therefore, does not currently intend to
make a filing under the FTA. However, should the Office of Fair Trading,
referred to as the "OFT," initiate an investigation into the merger, PowerGen
will file either a statutory merger notice or an informal submission with the
OFT. In reviewing the merger, the OFT would also consult with the Director
General of Electricity Supply and the Office of Gas and Electricity Markets. The
OFT may investigate a merger on its own initiative for a maximum of four months
following the date a completed transaction becomes public.
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GENERAL. While LG&E Energy and PowerGen believe that they will receive the
requisite regulatory approvals for the merger, there can be no assurance as to
the timing of such approvals or our ability to obtain such approvals on
satisfactory terms or otherwise.
EFFECTS OF THE MERGER
As a result of the merger, LG&E Energy shares of common stock will no longer
be publicly traded, and PowerGen will become the indirect and sole shareholder
of LG&E Energy.
Trading in the LG&E Energy shares on the New York and Chicago Stock
Exchanges will cease immediately as of the time the merger becomes effective.
After that time, LG&E Energy will delist the LG&E Energy shares from the New
York and Chicago Stock Exchanges and deregister the shares under the Securities
Exchange Act of 1934.
MERGER FINANCING
Based on the number of shares of LG&E Energy common stock and options
outstanding as of the date of the merger agreement, PowerGen will pay
approximately $3.23 billion upon completion of the merger. PowerGen has
established a $4 billion credit facility to fund the payment of this
consideration, to provide working capital for LG&E Energy and to provide a fund
to cover LG&E Energy debt maturing during the two to three years following the
merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the LG&E Energy board of directors to
approve the merger agreement, LG&E Energy shareholders should be aware that
members of the LG&E Energy board of directors and LG&E Energy management will
receive benefits from the merger that will be in addition to or different from
the benefits that LG&E Energy shareholders receive generally. The members of the
LG&E Energy board of directors knew about these additional interests and
considered them when they adopted the merger agreement.
SEVERANCE AGREEMENTS. Twenty-five officers of LG&E Energy or one of its
subsidiaries (including Mr. Hale and four senior executives who have agreed to
terminate their change in control agreements effective upon completion of the
merger) have change in control agreements. For purposes of the agreements, each
of (1) shareholder approval of the merger and (2) completion of the merger will
constitute a change of control and each will constitute the beginning of the
two-year period covered by the agreements. An additional two-year period will
commence at the effective time of the merger. Under the agreements, the officers
are entitled to receive severance benefits upon termination of their employment,
if such termination occurs for reasons other than cause or disability, or by the
executive for "good reason" within twenty-four months after such change of
control. "Good reason" includes among other things, relocation beyond a certain
distance, a reduction in the officer's title, authority, or responsibilities in
any manner the officer considers important, or a reduction in base salary or
certain benefits.
Severance benefits provided under the agreements include the following:
- a severance payment equal to 2.99 times the sum of (x) the greater of the
executive's annual base salary at termination or any time during the
90 days prior to the change of control, and (y) the greater of (1) the
most recent annual bonus paid or payable and (2) the bonus paid or
payable, or the "target" award payable, pursuant to LG&E Energy's
Short-Term Plan for the fiscal year ended prior to the change of control;
- continuation of medical and other welfare benefits for a period of time
equal to the lesser of 24 months or the number of months remaining until
the officer's 65th birthday;
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- a payment equal to 20% of base salary to be used for outplacement
services; and
- a payment to reimburse the officer for any excise taxes under
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code").
The officer is entitled to receive such amounts in a lump sum payment within
thirty days of termination.
STOCK INCENTIVE PLANS. Upon a change of control of LG&E Energy, all
stock-based awards, including all stock options, under the LG&E Energy Omnibus
Long Term Incentive Plan shall vest 100%, and all performance-based awards, such
as performance units and performance shares, shall immediately be paid out in
cash, based upon either the extent to which the performance goals have been met
through the effective date of the change of control (as determined by LG&E
Energy's Compensation Committee), or the value of the award at the time of
grant, whichever amount is higher. Approval of the merger by LG&E Energy's
shareholders will constitute a change of control and payments for
performance-based awards of not less than $6,027,850 will be required under the
LG&E Energy Long Term Incentive Plan.
INDEMNIFICATION AND INSURANCE. Under the merger agreement, PowerGen has
agreed to indemnify, after the completion of the merger, each present and former
officer or director of LG&E Energy or any of its subsidiaries to the fullest
extent that LG&E Energy or its subsidiaries would have been permitted to so
indemnify under the Kentucky Business Corporation Act or other relevant state
statute and LG&E Energy's or such subsidiaries' articles of incorporation and
bylaws in effect on the date of the merger agreement, including with respect to
all losses, costs or expenses (including reasonable attorneys' fees and
expenses), claims, damages or liabilities arising out of matters existing or
occurring at or prior to the completion of the merger.
In addition, for six years after the completion of the merger, the surviving
corporation will maintain directors' and officers' liability insurance for the
benefit of the existing directors and officers as of the effective time of the
merger. The surviving corporation may substitute for existing policies, new
policies or "tail" policies that are no less favorable in any material respect
to such officers and directors, and if the current policies terminate or expire
during such six-year period, the surviving corporation will use its best efforts
to get as much liability insurance as can be obtained for the remainder of such
six-year period for a cost not in excess of 200% of the premium currently paid
by LG&E Energy. However, if the annual premiums on liability insurance exceed
200% of the amount currently paid, then the surviving corporation will obtain
the best coverage available, for the remainder of such six-year period, for a
premium not in excess of 200% of the premium currently paid.
NEW EMPLOYMENT AGREEMENTS.
ROGER W. HALE. PowerGen and LG&E Energy have entered into a new employment
agreement with Roger W. Hale, to serve as Chairman and Chief Executive Officer
of LG&E Energy, which will take effect upon the closing of the merger. Mr. Hale
will, in consideration for the cancellation of his current employment and change
in control agreement with LG&E Energy, receive a payment of $4,708,040 (net of
payments to reimburse for the payment of excise taxes) equal to all cash
severance amounts to which Mr. Hale would have been entitled under his current
change in control agreement had he instead terminated his employment with LG&E
Energy after the closing of the merger. In addition, each share of restricted
stock granted to Mr. Hale under the LG&E Energy Long Term Incentive Plan will be
converted, like every other outstanding share of LG&E Energy common stock, into
the right to receive $24.85 in cash, without interest, upon the effectiveness of
the merger.
The new employment agreement provides that, for a period of three years
following the closing of the merger, if the surviving corporation terminates
Mr. Hale's employment without "cause," or
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Mr. Hale terminates his employment for "good reason," Mr. Hale will receive
severance benefits, including:
- a cash payment equal to the sum of his annual base salary as of the date
of termination plus his annual target bonus in respect of the greater of
the number of months remaining in the term of the agreement and
twenty-four months;
- continued welfare benefit coverage and specified perquisites and benefits,
for the greater of the number of months remaining in the term of the
agreement and twenty-four months;
- a cash payment equal to the sum of his target long-term incentive award
prorated through the date of his termination PLUS his target long-term
incentive award in respect of a period that is equal to the greater of the
number of months remaining in the term of the agreement and twenty-four
months; and
- a cash payment equal to his annual target bonus for the year in which his
termination occurs, prorated through his date of termination, plus a
payment in respect of the loss of benefits Mr. Hale would have otherwise
accrued under LG&E Energy's qualified defined benefit pension plan.
In the event that, following the closing of the merger, Mr. Hale's
employment terminates for any reason, including those set forth in the preceding
paragraph, Mr. Hale will, in consideration for the termination of his previous
employment agreement with LG&E Energy which provided him with a supplemental
retirement benefit, receive a new supplemental retirement benefit, calculated as
follows:
- in the event that Mr. Hale's employment terminates prior to the first
anniversary of the date of the closing of the merger, he will receive an
annual benefit equal to 50% of the sum of his base salary and annual
target bonus as in effect on the date of his termination;
- in the event that Mr. Hale's employment terminates after the first
anniversary but prior to the second anniversary of the date of the closing
of the merger, he will receive an annual benefit equal to 55% of the sum
of his base salary and his annual target bonus as in effect on the date of
his termination; and
- in the event that Mr. Hale's employment terminates after the second
anniversary but prior to the third anniversary of the date of the closing
of the merger, he will receive an annual benefit equal to 60% of the sum
of his base salary and his annual target bonus as in effect on the date of
his termination.
Upon Mr. Hale's death at any time during the term, his spouse will be
entitled to 50% of the retirement benefit Mr. Hale would have been entitled to
receive assuming he had terminated his employment at that time.
Finally, the new employment agreement provides that all payments made to
Mr. Hale which would be subject to an excise tax imposed by Section 4999 of the
Code, will be "grossed up" in order to reimburse Mr. Hale for any excise taxes
that may be due.
A copy of Mr. Hale's employment agreement is an exhibit to the merger
agreement which is attached as APPENDIX A to this proxy statement.
FOUR SENIOR EXECUTIVES. PowerGen and LG&E Energy have entered into
employment and severance agreements with Victor A. Staffieri, R. Foster Duncan,
John R. McCall and Frederick J. Newton, III, which take effect upon the closing
of the merger. In consideration for the cancellation of his current change in
control agreement with LG&E Energy, each executive shall receive a payment equal
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to 60% of all cash severance amounts to which he would have been entitled to
receive under such agreement. Upon the earliest to occur of (1) the date that is
18 months after the closing of the merger, so long as the executive is employed
on that date, (2) a change of control of PowerGen, and (3) a termination of the
executive's employment for any reason other than without "good reason" by the
executive, the executive will receive the remaining 40% of all cash severance
amounts to which he would have been entitled to receive under his change in
control agreement. The aggregate amounts to be paid to Messrs. Staffieri,
Duncan, McCall and Newton pursuant to these provisions at the effective time of
the merger are approximately $975,000, $694,000, $660,000, and $552,000 (net of
payments to reimburse for the payment of excise taxes), respectively.
In addition, upon the earliest to occur of (1) the date that is 18 months
after the closing of the merger, so long as the executive is employed on that
date, (2) a change of control of the surviving corporation, and (3) a
termination without "cause" by the surviving corporation, for "good reason" by
the executive, or as a result of the executive's death or disability, the
executive will receive the following:
- a lump sum cash payment equal to 10% of the cash severance amount payable
under the executive's previous change in control agreement; and
- an amount, payable in American Depositary Shares of PowerGen ("ADS's"),
equal to 10% of the cash severance amount payable under the executive's
previous change in control agreement.
The new employment agreements also provide the executives the opportunity to
convert their outstanding options to purchase shares of common stock of LG&E
Energy into options to purchase ADS's, and further provide that, if the
executives so elect, upon the later to occur of (1) two years after the closing
of the merger and (2) the date on which an executive exercises his options, the
executive will receive one additional ADS for every four ADS's underlying the
executive's converted options. The executives will also receive this benefit
immediately prior to a change of control of the surviving corporation or upon a
termination by the executive for "good reason" or upon termination by the
surviving corporation without cause, or as a result of the executive's death or
disability, within two years following the closing of the merger.
In addition, for so long as the executive's new employment agreement is in
effect, if the surviving corporation terminates the executive without "cause,"
or the executive terminates his employment for "good reason," the executive will
receive severance benefits including:
- a lump sum cash payment equal to the sum of (x) the greater of (1) his
annual base salary as of the date of termination or (2) as in effect at
any time during the 90 day period prior to the closing of the merger or a
change of control of PowerGen, as applicable plus (y) the greater of
(1) his most recent paid or payable annual bonus, (2) the annual bonus
paid or payable for the full fiscal year ended prior to the fiscal year in
which the closing of the merger occurred (or a change of control of the
surviving corporation, as applicable), and (3) the annual target bonus for
the full fiscal year ended prior to the closing of the merger (or a change
of control of the surviving corporation, as applicable), multiplied by a
fraction, the denominator of which is 12 and the numerator of which is the
greater of (x) the number of months remaining in the term of the agreement
and (y) twelve months (which payment shall be increased to 2.99 times the
sum of (x) and (y), in the event that the termination occurs after a
change of control of PowerGen);
- welfare benefits continuation for a period equal to twenty-four months
(which coverage shall be continued for a period of thirty-six months in
the event that the termination occurs after a change of control of the
surviving corporation);
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- a payment equal to 20% of the executive's then current annual base salary,
to be used for outplacement services; and
- a "gross up" payment to reimburse the executive for any excise tax imposed
under Section 4999 of the Code.
Each executive is prohibited for a period of one year (unless the
executive's employment is terminated within eighteen months after the closing of
the merger for any reason other than for "cause" by the surviving corporation,
in which case the period shall be reduced to six months), from soliciting any
client, customer or employee of PowerGen or the surviving corporation to compete
with the businesses of PowerGen or the surviving corporation.
TREATMENT OF STOCK OPTIONS OF DIRECTORS AND EMPLOYEES.
As additional compensation for their services, certain of the directors and
officers of LG&E Energy and its subsidiaries have been granted options to
purchase shares of LG&E Energy common stock at specified prices. After the
merger becomes effective, each option held will be considered to be an option to
acquire on the same terms and conditions a certain number of ADS's of PowerGen,
each of which represents four ordinary shares of PowerGen. Alternatively,
holders of outstanding options can choose to receive from PowerGen, for each
option, an amount in cash equal to the product of (1) the number of shares of
LG&E Energy common stock subject to such option and (2) the excess of $24.85
over the per share exercise price of the option.
POWERGEN BOARD OF DIRECTORS.
At the time the merger becomes effective, the PowerGen board of directors
will increase the number of PowerGen directors by one and will appoint Mr. Hale
to serve as a director of PowerGen.
ADVISORY BOARD.
Certain of the individuals serving on the board of directors of LG&E Energy
at the time the merger becomes effective will be invited to serve as members of
a U.S. advisory board to provide advice to PowerGen with respect to the
operations of LG&E Energy.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of the material United States federal
income tax consequences of the merger applicable to LG&E Energy shareholders.
This discussion is based upon the provisions of the Code, current and proposed
United States Treasury Regulations, judicial authority, and administrative
rulings. Legislative, judicial and administrative rules and interpretations are
subject to change at any time, possibly on a retroactive basis, and the
following statements and conclusions are therefore subject to change. This
discussion only addresses United States federal income tax consequences to a
United States person (i.e., a citizen or resident of the United States, a
domestic corporation or domestic trust) who holds shares of LG&E Energy common
stock as capital assets. This discussion does not address all aspects of United
States federal income taxation that may be relevant to a particular LG&E Energy
shareholder in light of that shareholder's individual circumstances, and does
not apply to LG&E Energy shareholders:
- who are subject to special treatment under the United States federal
income tax laws (for example, life insurance companies, tax-exempt
organizations, financial institutions, United States expatriates, foreign
corporations, foreign trusts and nonresident alien individuals);
- who hold LG&E Energy shares as part of a hedging, "straddle," conversion,
constructive sale or other integrated transaction;
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- who acquired their LG&E Energy shares through the exercise of employee
stock options or other compensation arrangements; or
- who exercise dissenters' rights.
In addition, the discussion does not address the consequences of any
foreign, state or local tax laws or the consequences of any federal laws other
than those pertaining to the federal income tax.
The receipt of the consideration to be paid in the merger will be a taxable
transaction. In general, a holder of shares of LG&E Energy common stock will
recognize gain or loss equal to the difference between
- the amount of cash received; and
- the holder's adjusted tax basis in LG&E Energy shares converted in the
merger.
Gain or loss will be calculated separately for each block of shares
converted into cash in the merger (i.e., shares acquired at the same cost in a
single transaction). The gain or loss will be short-term capital gain or loss
if, at the completion of the merger, the LG&E Energy shares so converted were
held for one year or less. If the shares were held for more than one year, the
capital gain or loss will be long-term capital gain or loss, subject (in the
case of holders who are individuals or certain domestic trusts) to tax at a
maximum statutory United States federal income tax rate of 20%. Limitations may
apply to the deductibility of any capital losses recognized on the disposition
of LG&E Energy shares.
Under the United States federal income tax backup withholding rules, unless
an exemption applies, PowerGen is required to and will withhold 31% of all
payments to which a LG&E Energy shareholder or other payee is entitled in the
merger or otherwise, unless the payee provides a taxpayer identification number
(a social security number, in the case of an individual, or an employer
identification number, in the case of other shareholders), and certifies under
penalties of perjury that the number is correct. Each LG&E Energy shareholder
and, if applicable, each other payee, should complete and sign the substitute
Form W-9 that will be part of the letter of transmittal sent separately to the
shareholder and return it to the paying agent to provide the certification
necessary to avoid backup withholding, unless an applicable exemption exists and
is otherwise proved in a manner satisfactory to the paying agent. The exemptions
provide that certain LG&E Energy shareholders (including, among others, all
corporations) are not subject to backup withholding. Any amounts withheld will
be allowed as a credit against the holder's United States federal income tax
liability for the year, provided that the required information is furnished to
the Internal Revenue Service.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE UNITED
STATES FEDERAL, STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO
THEM IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.
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RIGHTS OF DISSENTING SHAREHOLDERS
The following discussion of dissenters' rights under the Kentucky Business
Corporation Act does not purport to be complete and is qualified in its entirety
by reference to the provisions of Chapter 271B, Subtitle 13 of the Kentucky
Business Corporation Act attached as APPENDIX C to this proxy statement. LG&E
Energy will supply to you a complete copy of Chapter 271B, Subtitle 13 upon
written request to: LG&E Energy Corp., P.O. Box 32030, Louisville, Kentucky
40232, Attention: Secretary.
Any record shareholder or beneficial shareholder of LG&E Energy common stock
who is entitled to vote on the proposed merger at the annual meeting is entitled
to object to the proposed merger and to obtain payment of the fair market value
of his or her shares instead of receiving the cash consideration to be paid in
the merger. If you elect to assert your Dissenters' Rights, you must, before the
vote is taken at the annual meeting regarding approval of the merger agreement,
deliver to LG&E Energy written notice of your intent to demand payment for your
shares and you must not vote your shares in favor of approval of the merger. A
record shareholder may assert dissenters' rights as to fewer than all the shares
registered in such shareholder's name only if such record shareholder dissents
with respect to all shares beneficially owned by any one person and notifies
LG&E Energy in writing of the name and address of each person on whose behalf
the record shareholder asserts dissenters' rights. Similarly, a beneficial
shareholder of LG&E Energy common stock may assert dissenters' rights as to
shares held on his or her behalf only if the beneficial shareholder submits to
LG&E Energy the record shareholder's written consent to the dissent not later
than the time the beneficial shareholder asserts dissenters' rights and the
beneficial shareholder does so with respect to all shares of which he or she is
the beneficial shareholder or over which he or she has power to direct the vote.
All notices to LG&E Energy should be sent or delivered to the address provided
at the end of the first paragraph of this section.
Within ten days after approval of the merger agreement by shareholders, LG&E
Energy must send to each person who has satisfied the foregoing requirements for
asserting dissenters' rights a notice which will, among other things:
(1) state where the payment demand (described below) must be sent;
(2) state where and when certificates for certified shares must be
deposited;
(3) inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(4) supply a form for demanding payment that includes the date of the first
public announcement to news media or to shareholders of the proposed
merger (which date was February 28, 2000) and requires that the
shareholder asserting dissenters' rights certify whether or not the
shareholder acquired beneficial ownership of its shares before that date;
(5) set a date (which must be at least 30 but not more than 60 days after
the date the notice is delivered) by which LG&E Energy must receive the
payment demand; and
(6) be accompanied by a copy of Chapter 271B, Subtitle 13 (the dissenters'
rights provision) of the Kentucky Business Corporation Act.
If you receive a dissenters' notice and wish to exercise your dissenters'
rights, you must submit a demand for payment, must certify whether beneficial
ownership of the shares was acquired prior to February 28, 2000, and must
deposit your share certificates in accordance with the terms of the dissenters'
notice. As soon as the merger is consummated or upon receipt of the payment
demand and the share certificates from a dissenting shareholder who has
certified that beneficial ownership was acquired before February 28, 2000, LG&E
Energy will pay the dissenting shareholder LG&E Energy's
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estimate of the fair value of the dissenting shareholder's share plus accrued
interest, if any, from the date that the merger is consummated. Upon receipt of
such payment demand and the share certificates from a dissenting shareholder who
did not certify that beneficial ownership was acquired prior to February 28,
2000, LG&E Energy may elect to withhold payment to a dissenting shareholder
unless he or she was the beneficial owner of the shares before February 28,
2000. To the extent that LG&E Energy elects to withhold such payments, after the
proposed merger is consummated, it shall estimate the fair value of the
dissenting shareholder's shares plus accrued interest, if any, and pay such
amount to each dissenting shareholder who agrees to accept it in full
satisfaction of his or her demand.
Within 30 days after receipt of this payment or offer, the dissenting
shareholder may notify LG&E Energy, in writing, of his or her own estimate of
the fair value of the shares (and accrued interest) and demand payment of his or
her estimate (less any payment previously received).
In the event LG&E Energy fails to make payment to a person within 60 days
after the date set for demanding payment or LG&E Energy, having failed to
consummate the merger, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within sixty (60) days
after the date set for demanding payment, that person may notify LG&E Energy in
writing of his or her own estimate of the fair value of his or her shares (and
accrued interest) and demand payment of such estimate.
If a dissenting shareholder's demand for payment remains unsettled, LG&E
Energy may, within 60 days after receiving the payment demand, commence a
proceeding, in the Circuit Court of Jefferson County, Kentucky, to determine the
fair value of such shares. If LG&E Energy fails to commence a valuation
proceeding within this 60-day time period, LG&E Energy must pay to each
dissenting shareholder whose demand remains unsettled the amount each such
dissenting shareholder demands as fair value.
SHAREHOLDERS CONTEMPLATING EXERCISING DISSENTERS' RIGHTS UNDER KENTUCKY LAW
ARE URGED TO CAREFULLY READ THE PROVISIONS OF CHAPTER 271B, SUBTITLE 13 OF THE
KENTUCKY BUSINESS CORPORATION ACT ATTACHED AS APPENDIX C HERETO.
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THE MERGER AGREEMENT
THE FOLLOWING DESCRIPTION IS A SUMMARY OF THE MATERIAL TERMS OF THE MERGER
AGREEMENT. IT IS QUALIFIED, IN ITS ENTIRETY, BY THE ACTUAL MERGER AGREEMENT, A
COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT. WE URGE YOU TO
READ THE ACTUAL MERGER AGREEMENT CAREFULLY.
GENERAL
The merger agreement provides that Merger Sub, a Kentucky corporation to be
formed as an indirect wholly owned subsidiary of PowerGen, will merge with and
into LG&E Energy. LG&E Energy will survive the merger as an indirect wholly
owned subsidiary of PowerGen.
The closing of the merger will occur on the fifth business day after the
last of the conditions to the merger have been satisfied or waived, or at such
other time as LG&E Energy and PowerGen agree. As soon as practicable after the
closing, LG&E Energy and PowerGen will deliver articles of merger to the
Secretary of State of the Commonwealth of Kentucky for filing. The merger will
become effective upon the filing of these articles. Although no assurances can
be given, we currently expect that the closing of the merger will take place
approximately nine to twelve months after the date of the merger agreement.
CORPORATE GOVERNANCE MATTERS
DIRECTORS. For three years after the merger is completed, the board of
directors of LG&E Energy will consist of three directors, one of which will be
an individual who was an officer or director of LG&E Energy at the effective
time and two of which will initially be directors of Merger Sub prior to
completion. These directors will hold office until their successors are duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with LG&E Energy's articles of incorporation and bylaws.
In addition, the PowerGen board of directors will increase the number of
PowerGen directors by one and will appoint Mr. Hale to serve as a director of
PowerGen. Also, those individuals serving on the LG&E Energy board of directors
at the time the merger becomes effective will, after the effective time, serve
on a U.S. advisory board to provide advice regarding the operations of LG&E
Energy and other matters.
OFFICERS. Following the merger, Mr. Hale (if he is willing and able) will
remain the Chairman and Chief Executive Officer of LG&E Energy in accordance
with the terms and conditions of Mr. Hale's new employment agreement. The other
officers of the surviving corporation will be the same individuals who hold the
officer positions in LG&E Energy at the time the merger becomes effective. All
officers will hold their positions until their successors are duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with LG&E Energy's articles of incorporation and bylaws.
CONVERSION OF LG&E ENERGY SHARES
MERGER CONSIDERATION. At the effective time of the merger, each issued and
outstanding LG&E Energy share (other than those shares that are held by LG&E
Energy shareholders who have properly asserted dissenters' rights and those
shares that are owned by LG&E Energy, PowerGen or any of their respective
subsidiaries) will be converted into the right to receive $24.85 per share in
cash, without interest.
DISSENTERS' SHARES. LG&E Energy shareholders who pursue their rights to
dissent under Kentucky law will not receive the merger consideration, which is
$24.85 per share in cash, without interest. These shareholders will have only
those rights that are granted by applicable Kentucky law as described on
pages 33-34 . If, however, a holder fails to perfect or withdraws or loses his
right to
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dissent, his or her LG&E Energy shares will be converted into the right to
receive the merger consideration.
EXCHANGE AND PAYMENT PROCEDURES. At or prior to the completion of the
merger, PowerGen will cause US Subholdco 2, a corporation to be formed as a
Delaware corporation and an indirect wholly owned subsidiary of PowerGen, to
deposit the aggregate consideration to be paid in the merger to the "paying
agent," which will be a bank or trust company having a branch in New York City.
The paying agent will be selected by PowerGen with our prior approval. Promptly
after the completion of the merger, the paying agent will mail to each
shareholder of LG&E Energy as of the record date the following:
- a letter of transmittal for use in submitting stock certificates to the
paying agent; and
- instructions explaining what the shareholders must do to effect the
surrender of the LG&E Energy stock certificates and receive the merger
consideration.
After a shareholder submits his or her stock certificates, a letter of
transmittal and other documents that may be required, the shareholder will have
the right to receive the merger consideration. The merger consideration may be
delivered to someone who is not listed in LG&E Energy's transfer records if he
or she presents a LG&E Energy share certificate to the paying agent along with
all documents required to evidence that a transfer of the certificate has been
made to him or her and any applicable stock transfer taxes have been paid. After
completion of the merger, until surrender, each certificate (other than those
that are held by LG&E Energy shareholders who have properly asserted dissenters'
rights) will be deemed to represent only the right to receive the merger
consideration upon surrender.
SHAREHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE PAYING AGENT UNTIL THEY
HAVE RECEIVED A LETTER OF TRANSMITTAL. SHAREHOLDERS SHOULD NOT RETURN
CERTIFICATES WITH THE ENCLOSED PROXY.
TREATMENT OF STOCK OPTIONS. Upon completion of the merger, holders of
outstanding options to purchase shares of LG&E Energy will have the option to
either (1) if the holder delivers his written election to LG&E Energy at least
three business days prior to the effective time, cash out the options and
receive from PowerGen an amount per share in cash equal to the difference
between $24.85 and the exercise price of the option (less any required
withholding) or (2) roll over the options into options to acquire, on the same
terms and conditions as were applicable to the options to acquire shares of LG&E
Energy, the number of ADS's of PowerGen equal to the result of (rounded down to
the nearest whole ADS) multiplying the number of shares of LG&E Energy common
stock subject to the option immediately prior to completion by the "conversion
ratio," at an exercise price per ADS equal to the result (rounded up to the
nearest whole cent) of dividing the per share exercise price of such option to
acquire shares of LG&E Energy common stock by the conversion ratio. The term
"conversion ratio" means a fraction, the numerator of which is the average of
the high and low sales price of one share of LG&E Energy common stock on the New
York Stock Exchange on the trading day immediately prior to the completion of
the merger and the denominator of which is the average of the high and low sales
price of an ADS on the New York Stock Exchange on that date.
TREATMENT OF RESTRICTED SHARES. At the effective time of the merger, each
outstanding share of common stock awarded as a restricted share of common stock
of LG&E Energy will be canceled and converted into the right to receive $24.85
per share in cash, without interest.
WITHHOLDING RIGHTS. Each of the surviving corporation, LG&E Energy and
PowerGen is entitled to deduct and withhold from the merger consideration those
amounts it is required to deduct and withhold under the Internal Revenue Code or
any provision of state, local or foreign tax law.
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REPRESENTATIONS AND WARRANTIES
In the merger agreement, LG&E Energy and PowerGen make representations and
warranties about themselves, their subsidiaries and their businesses, including
the following:
- by LG&E Energy as to, among others:
- proper organization, good standing and qualification to do business in
various states;
- capital structure;
- authority to enter into and the enforceability of the merger agreement;
- the approval of the merger by its board of directors and the receipt by
its board of directors of the fairness opinion of The Blackstone Group
L.P.;
- the accuracy of its company reports and financial statements;
- the filing with regulatory agencies of all required reports, notices or
other filings;
- the absence of any conflicts or violations of LG&E Energy's corporate
documents or agreements as a result of the merger or the merger
agreement;
- the absence of certain adverse changes or events;
- litigation and other liabilities;
- employee matters and matters relating to the Employee Retirement Income
Security Act of 1974;
- compliance with certain laws;
- the absence of government investigations;
- possession of necessary permits;
- environmental compliance and liability;
- tax matters;
- insurance;
- the inapplicability of LG&E Energy's rights agreement;
- the absence of any brokers or finders fees;
- regulatory proceedings;
- regulation as a utility;
- compliance with agreements;
- joint ventures;
- derivative products; and
- the provision of information to PowerGen with respect to Oglethorpe
Power Corporation and the electric rate cases currently pending with
the Kentucky Commission;
- and by PowerGen as to, among others:
- the proper organization, good standing and qualification to do business
in various jurisdictions of PowerGen and its subsidiaries;
- authority to enter into and the enforceability of the merger agreement;
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- the filing with regulatory agencies of all required reports, notices or
other filings;
- the accuracy of PowerGen reports;
- the availability of funds to complete the merger;
- litigation; and
- its receipt of information with respect to Oglethorpe Power Corporation
and the electric rate cases currently pending with the Kentucky
Commission;
The representations and warranties made by the parties to the merger
agreement will not survive the merger, but their accuracy forms the basis of one
of the conditions to the obligations of PowerGen and LG&E Energy to complete the
merger.
COVENANTS
INTERIM OPERATIONS. LG&E Energy has agreed that, until the effective time
of the merger or the termination of the merger agreement, and unless PowerGen
approves otherwise, LG&E Energy and its subsidiaries will, among other things:
- carry on their businesses in the ordinary and usual course;
- use their reasonable best efforts to, subject to prudent management of
workforce needs and ongoing programs currently in force, preserve their
business organization and relationships with customers, suppliers,
employees and other business associates, maintain their material
properties and assets in good repair and condition, and maintain all
existing governmental permits required for the continued operation of
their businesses in all material respects;
- not amend their articles of incorporation or bylaws; and
- abide by certain customary restrictions on and requirements with respect
to, among others: (1) dividends, (2) stock splits and issuances of shares,
(3) redemptions or repurchases of shares, (4) substantial equity and asset
acquisitions and dispositions, (5) capital expenditures and operation and
maintenance expenditures, (6) indebtedness, (7) employee benefit plans and
other employment arrangements, (8) tax and accounting matters,
(9) discharge of liabilities or settlement of claims, (10) modification of
material contracts, (11) liquidation, dissolution, merger or other
reorganization, (12) additional gas storage, generation and transmission,
(13) rates and rate filings, (14) affiliate arrangements, and
(15) insurance.
LG&E Energy has further agreed that, unless PowerGen otherwise consents, its
budget for fiscal year 2001 will not make or authorize the making of capital
expenditures or operation and maintenance expenditures in excess of the
comparable amounts for such items in LG&E Energy's budget for fiscal year 2000,
REDUCED BY:
- budgeted expenditures in LG&E Energy's budget for fiscal year 2000 for the
550MW merchant facilities located in Gregory, Texas; and
- the incremental benefits of the "one utility" cost initiative
and INCREASED BY:
- any additional amount required in order to satisfy our obligations under
the Clean Air Act, as amended; and
- a 2% inflation adjustment for operation and maintenance expenditures.
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In addition we have agreed that, unless PowerGen otherwise consents, our
budget for fiscal year 2001 will not make or authorize any acquisition of, or
investment in, assets or stock of, or other interest in, any other person or
entity, except:
- for the required earnout payment provided for in the merger agreement
related to Capital Corp.'s prior acquisition of CRC Holdings Corp. in
July 1999; and
- funding of up to $1 million related to our investment in ServiConfort
Argentina, S.A., a gas utility in Argentina.
NO SOLICITATION OF ALTERNATIVE PROPOSALS. LG&E Energy also agreed to
certain restrictions concerning any "acquisition proposal," which is defined in
the merger agreement as any proposal or offer relating to a merger,
reorganization, share exchange, consolidation or similar transaction between a
third party and LG&E Energy, LG&E, KU or Capital Corp., or any purchase of a
substantial equity interest in or all or a substantial portion of the assets of
LG&E Energy, LG&E, KU and Capital Corp. Specifically, LG&E Energy agreed, among
other things, that:
- neither it nor its subsidiaries nor any of their respective directors or
officers will, and LG&E will direct and use its best efforts to cause its
"representatives" (i.e., employees, agents, investment bankers, attorneys
and accountants) not to, directly or indirectly, initiate, solicit,
encourage or otherwise facilitate any inquiries or the making of any
proposal or offer with respect to an acquisition proposal; and
- neither it nor its subsidiaries nor any of their respective directors or
officers will, and LG&E will direct and use its best efforts to cause its
"representatives" (i.e., employees, agents, investment bankers, attorneys
and accountants) not to, engage in any negotiations or discussions
concerning, or provide any confidential information or data to any person
or entity relating to, an acquisition proposal or otherwise facilitate any
effort or attempt to make or implement an acquisition proposal.
However, nothing contained in the merger agreement prohibits LG&E Energy or
its board of directors from:
(1) Complying with Rules 14d-9 and 14e-2 under the Securities Exchange Act
of 1934, as amended;
(2) providing access to its properties, books and records and providing
information in response to a request therefor by a person or entity who
has made an unsolicited bona fide written acquisition proposal so long as
the LG&E Energy board of directors receives from that person or entity an
executed confidentiality agreement on terms substantially similar to
those contained in the confidentiality agreement between PowerGen and
LG&E Energy;
(3) engaging in any negotiations or discussions with any person or entity
who has made an unsolicited bona fide written acquisition proposal; or
(4) recommending an acquisition proposal to the LG&E Energy shareholders or
withdrawing or modifying in any adverse manner its adoption or
recommendation of the merger agreement.
In order to engage in any of the activities described in (2), (3) or
(4) above, however, such activities must not occur for more than 20 business
days with respect to an acquisition proposal or amendment thereto and prior to
any approval of the merger agreement by the LG&E Energy shareholders, and the
LG&E Energy board of directors must conclude that such action is necessary in
order for it to comply with its fiduciary obligations. Further, in order to
engage in activities described in (2) and (3), the LG&E Energy board of
directors must conclude that such activities could reasonably be expected to
lead to a "superior proposal" and, in order to engage in the actions in (4), it
must be in connection with a "superior proposal." The term "superior proposal"
means an acquisition proposal that, if accepted,
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is reasonably capable of being completed--taking into account legal, financial,
regulatory, timing and similar aspects of the acquisition proposal and the
person or entity making the proposal--and, if completed, would be more favorable
to LG&E Energy shareholders from a financial point of view than the merger.
ADDITIONAL AGREEMENTS
In addition to the covenants above, the parties have also agreed on the
following matters, among others:
ACCESS TO INFORMATION. Upon reasonable notice and except as may otherwise
be required by law, LG&E Energy will provide PowerGen and its representatives
with reasonable access to its properties, books, contracts and records, subject
to limited exceptions. Further, LG&E Energy will provide PowerGen and its
representatives access to all information concerning LG&E Energy's business,
properties and personnel as PowerGen may reasonably request, subject to limited
exceptions. PowerGen will, at the request of LG&E Energy, provide information
concerning its financial condition and its source or sources of financing for
the merger consideration as may be reasonably requested.
OTHER ACTIONS. The merger agreement provides that both PowerGen and LG&E
Energy will use their respective best reasonable efforts to take or cause to be
taken all actions, and do or cause to be done all things, necessary, proper or
advisable to complete the merger and the other transactions contemplated by the
merger agreement as soon as practicable. This includes preparing and filing all
required documentation and obtaining all consents, registrations, approvals,
permits and authorizations necessary or advisable to be obtained from any third
party and/ or governmental entity in order to complete the merger or any of the
other transactions contemplated by the merger agreement. Also, both we and
PowerGen have agreed not to take or fail to take any action that is reasonably
likely to result in any failure of the conditions to the completion of the
merger or to make any of LG&E Energy's or PowerGen's respective representations
and warranties inaccurate in any material respect or reasonably likely to,
individually or in the aggregate, have a material adverse effect. In addition,
LG&E Energy and PowerGen have agreed to cooperate and use their best reasonable
efforts to defend against and respond to any claim, investigation or other
proceeding brought by a governmental entity or third party questioning the
validity or legality of the merger agreement, the merger or the other
transactions contemplated by the merger agreement or seeking damages in
connection with those matters.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. In the merger agreement,
PowerGen has agreed to provisions relating to indemnification of the present and
former directors and officers of LG&E Energy and its subsidiaries, and the
provision and maintenance of liability insurance for such persons, as described
above under "THE MERGER--INTERESTS OF MANAGEMENT AND DIRECTORS IN THE MERGER."
EMPLOYEE BENEFIT PLANS. Employees of LG&E Energy or any of its subsidiaries
immediately before the effective time of the merger who remain employed after
the effective time of the merger will, for a period of at least two years from
the date that the merger becomes effective, continue to be provided with
benefits under employee benefit plans (other than plans involving the issuance
of shares of common stock) that are no less favorable when viewed as a whole
than those being provided to employees by LG&E Energy or its subsidiaries on the
date of the merger agreement.
If neither PowerGen nor the surviving corporation maintains equity-based
employee benefit plans for the benefit of employees of LG&E Energy and its
subsidiaries, PowerGen is obligated to provide or to cause the surviving
corporation to provide, for a period of at least two years following completion
of the merger, a long-term incentive plan for the benefit of those employees
providing payments, upon the achievement of reasonable performance criteria, no
less favorable than the value of the equity-based compensation otherwise
provided under long-term incentive plans existing for the
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benefit of current or former employees or directors of LG&E Energy and its
subsidiaries immediately prior to the date of the merger agreement. In addition,
PowerGen is generally obligated to honor and perform agreements and commitments
of LG&E Energy made prior to the date of the merger agreement that apply to any
current or former employees or directors of LG&E Energy and its subsidiaries;
however, PowerGen generally is permitted to amend or terminate those agreements
and commitments in accordance with their terms.
EXPENSES. Except for expenses incurred in connection with the printing and
mailing of this proxy statement and the circular to be mailed to shareholders of
PowerGen (which will be shared equally by LG&E Energy and PowerGen) and except
as described under "--TERMINATION, AMENDMENT AND WAIVER--TERMINATION," on
pages 44-45, both parties will generally pay their own costs and expenses
incurred in connection with the merger.
FINANCING. PowerGen has agreed to use commercially reasonable efforts to
obtain the financing necessary to pay the consideration for the common stock of
LG&E Energy in connection with the merger. PowerGen has established a
$4 billion credit facility to fund the payment of the consideration to be paid
in the merger, to provide working capital for LG&E Energy and to provide a fund
to cover LG&E Energy debt maturing during the two to three years following the
merger.
DERIVATIVE PRODUCTS. LG&E Energy has agreed that, until the completion of
the merger, it shall enter into transactions in "derivative products" only in a
manner consistent with the operating practices of LG&E Energy during the
18 months before the date of the merger agreement. In addition, all transactions
in derivative products (related to continuing operations) entered into, and all
open positions in and portfolios of derivative products maintained, by LG&E
Energy or any of its subsidiaries will be in compliance with our written trading
policies in all material respects. In connection with such trading activities,
LG&E Energy has agreed that it will not, without the approval of PowerGen:
(1) maintain an overall short position;
(2) maintain an overall long position over the budgeted amount of forecasted
excess generation capacity;
(3) write call options exceeding adequate excess generation capacity; and
(4) write put options unless load is forecasted to exceed economic
generation.
LG&E Energy has further agreed that all transactions in derivative products
(related to discontinued operations) entered into, and all open positions in and
portfolios of derivative products maintained, by LG&E Energy or any of its
subsidiaries will at all times be used only in mitigation of existing risk in
the discontinued merchant portfolios.
The merger agreement defines the term "derivative products" as:
(1) any swap, cap, floor, collar, futures contract, forward contract, option
and any other derivative financial instrument, contract or arrangement,
based on any commodity, security, instrument, asset, rate or index of any
kind or nature whatsoever, whether tangible or intangible, including but
not limited to electricity, natural gas, crude oil and other commodities,
currencies, interest rates and indices; and
(2) forward contracts for physical delivery, physical output of assets, and
physical load obligations.
THIRD PARTY STANDSTILL AGREEMENTS. Except as required to comply with its
fiduciary duties prior to the approval of the merger agreement by the LG&E
Energy shareholders, until the completion of the merger, neither LG&E Energy nor
any of its subsidiaries will terminate, amend, modify or waive any
confidentiality or standstill agreement to which it is a party.
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CERTAIN MERGERS. Each of LG&E Energy and PowerGen has agreed, among other
things, that it and its subsidiaries will not merge, consolidate with, or
purchase a substantial portion of the assets of or equity in another entity or
division thereof if such transaction could reasonably be expected to adversely
affect the timing or likelihood of consummation of the merger.
FURTHER ASSURANCES. Each of LG&E Energy and PowerGen has also agreed that
if the only barrier to completing the merger is the inability to obtain
governmental, regulatory or other consents and these consents can be obtained by
adopting an alternative structure that does not result in a substantial
diminution for PowerGen or LG&E Energy of the economic benefits expected to be
realized from the merger or from PowerGen's utilization of intermediate holding
companies to complete the merger, then the parties will use their reasonable
best efforts to effect the combination by means of an alternative structure that
does not result in such diminution.
POST-MERGER OPERATIONS. After the effective time of the merger, the
corporate headquarters of the surviving corporation will continue to be located
in Louisville, Kentucky. LG&E and KU will maintain their separate corporate
existences operating under the names of "Louisville Gas and Electric Company"
and "Kentucky Utilities Company," respectively. The current corporate
headquarters of LG&E and KU will remain the corporate headquarters for each of
the companies. The officers of LG&E and KU shall be entitled to remain officers
of the respective companies unless the boards of directors of the respective
companies decide otherwise.
After completion of the merger, PowerGen or the surviving corporation will
continue to make charitable and community contributions to the communities
served by the surviving corporation and maintain a substantial level of
involvement in community activities in the State of Kentucky that is comparable
to or greater than the normal annual aggregate level of charitable
contributions, community development and related activities carried on by LG&E
Energy prior to the date of the merger agreement. PowerGen has acknowledged that
LG&E Energy Foundation Inc. has been created to support charitable causes in the
service territories of LG&E and KU and PowerGen will ensure that the surviving
corporation causes LG&E Energy Foundation Inc. to continue to support charitable
causes in those service territories. The name of the surviving corporation shall
be "LG&E Energy Corp."
In addition, LG&E Energy and PowerGen have agreed to establish a transition
committee to facilitate a full exchange of information concerning the business,
operations, capital spending, budgets and financial results of LG&E Energy,
identify ways in which the operations of PowerGen and LG&E Energy can be
coordinated and develop plans for the operation and growth of LG&E Energy. The
transition committee will consist of the Chief Executive Officers of PowerGen
and LG&E Energy, who will be Co-Chairmen of the committee and who will meet at
least monthly, and such other persons as the Chief Executive Officers designate.
CONDITIONS
MUTUAL CONDITIONS. The respective obligation of each party to complete the
merger is subject to the satisfaction or waiver of the following conditions:
- LG&E Energy shareholders and PowerGen shareholders have approved the
merger agreement and PowerGen shareholders have approved an increase in
PowerGen's borrowing powers under its articles of association;
- LG&E Energy and PowerGen have obtained the requisite governmental
approvals and all applicable waiting periods must have expired, except for
those the failure of which to obtain would not, individually or in the
aggregate, have a material adverse effect; and
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- the absence of any legal restriction that restrains, enjoins or otherwise
prohibits the completion of the merger.
CONDITIONS TO OBLIGATIONS OF POWERGEN. The obligations of PowerGen to
complete the merger are subject to the satisfaction or waiver of the following
conditions:
- the representations and warranties of LG&E Energy must be true and correct
on the date of the merger agreement and on the closing date of the merger
(except for representations and warranties made as of a specified date,
the accuracy of which will be determined as of the specified date), except
for inaccuracies that would not, individually or in the aggregate, have a
material adverse effect on LG&E Energy and its subsidiaries taken as a
whole. Some representations and warranties, including those related to
capitalization, corporate authority, absence of certain changes relating
to LG&E Energy, the inapplicability of takeover laws and LG&E Energy's
rights agreement, brokers or finders, regulation as a utility, information
related to joint ventures and information related to Oglethorpe Power
Corporation and LG&E Energy's electric rate cases currently before the
Kentucky Commission, must be true and correct in all material respects on
the date of the merger agreement and on the closing date;
- LG&E Energy having performed in all material respects all obligations
required to be performed under the merger agreement;
- LG&E Energy having obtained all requisite third-party consents, unless the
failure to obtain any consent would not, individually or in the aggregate,
have a material adverse effect on LG&E Energy and its subsidiaries taken
as a whole;
- there shall not have occurred a material adverse effect on LG&E Energy and
its subsidiaries, taken as a whole, and there shall not exist any facts or
circumstances that, individually or in the aggregate, are reasonably
likely to have such a material adverse effect;
- the SEC shall have issued an order or orders under the 1935 Act that
satisfies the terms described under "Regulatory Matters" on pages 24-26;
- it shall have been established that (1) it is not the intention of the
United Kingdom's Secretary of State for Trade and Industry, referred to as
the "SoS," to refer the merger, or any matter arising therefrom, to the
Competition Commission pursuant to he FTA or (2) having been referred to
the Competition Commission, the SoS shall have indicated that it is his
intention to permit the merger and any matter arising therefrom to take
place, provided that such indication is not subject to any undertakings,
assurances or other terms or conditions, which would have a material
adverse effect on PowerGen; and
- it shall have been established that it is not the intention of the
Director General of Electricity Supply and the office of Gas and
Electricity Markets in the United Kingdom pursuant to the Electricity Act
of 1989 to seek any modifications to (or any undertaking or assurance in
respect of) any license or appointment held by PowerGen or any of its
subsidiaries which, in any such case, would have a material adverse effect
on PowerGen.
As used in the merger agreement, the term "material adverse effect," when
used in relation to LG&E Energy, means a material adverse effect on the
condition (financial or otherwise), properties, business, operations or results
of operations of LG&E Energy and its subsidiaries taken as a whole, or any
effect which prevents, materially delays or materially impairs the ability of
LG&E Energy to consummate the transactions contemplated by the merger agreement,
other than:
(1) losses resulting from any increase in LG&E Energy's reserves or other
losses arising out of the contracts that were the subject of the
arbitration proceeding between Oglethorpe Power Corporation and LG&E
Energy for which an order was issued in December 1999; or
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(2) any effect from the electric rate cases currently pending with the
Kentucky Commission, including, without limitation, the order issued by
the Kentucky Commission on January 7, 2000 (and any appeal thereof) with
respect thereto.
The term "material adverse effect" when used in relation to PowerGen has a
correlative meaning, except that it does not exclude effects related to
Oglethorpe Power Corporation or LG&E Energy's electric rate cases.
CONDITIONS TO OBLIGATIONS OF LG&E ENERGY. The obligations of LG&E Energy to
complete the merger are subject to the satisfaction or waiver of the following
conditions:
- The representations and warranties of PowerGen must be true and correct on
the date of the merger agreement and on the closing date of the merger
(except for representations and warranties made as of a specified date,
the accuracy of which will be determined as of the specified date), except
for inaccuracies that would not, individually or in the aggregate, have a
material adverse effect on PowerGen and its subsidiaries, taken as a
whole. Some representations and warranties, including those related to
capitalization, corporate authority, the applicability of takeover laws
and regulation as a utility, must be true and correct in all material
respects on the date of the merger agreement and on the closing date
without regard to whether their inaccuracy would result in a material
adverse effect;
- PowerGen having performed in all material respects the agreements and
covenants contained in the merger agreement;
- PowerGen or Merger Sub having executed and delivered an employment
agreement with Mr. Hale; and
- PowerGen having obtained all requisite third-party consents, unless the
failure to obtain any consent would not, individually or in the aggregate,
have a material adverse effect on PowerGen and its subsidiaries, taken as
a whole.
TERMINATION, AMENDMENT AND WAIVER
TERMINATION. The merger agreement may be terminated at any time before the
completion of the merger, even after the LG&E Energy or PowerGen shareholders
have already approved it unless otherwise noted below:
- by mutual written consent of LG&E Energy and PowerGen;
- by either LG&E Energy or PowerGen if the merger is not completed by
August 31, 2001 although the parties have agreed to extend this date until
February 28, 2002 in order to obtain the necessary regulatory approvals,
although it may not be terminated by a party who has breached the merger
agreement and whose breach has resulted in the failure of the merger to be
completed;
- by either LG&E Energy or PowerGen if the shareholders of LG&E Energy or
PowerGen fail to approve the merger (or, in the case of PowerGen's
shareholders, any necessary increase in PowerGen's borrowing powers, as
described above) at the meeting at which such vote is taken;
- by either LG&E Energy or PowerGen if any state or federal law prohibits
the merger or if any state or federal court of competent jurisdiction
issues a final and non-appealable decision that permanently enjoins the
merger;
- by LG&E Energy if PowerGen fails to deliver the cash necessary to pay for
the LG&E Energy shares in the merger prior to or at the closing;
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- by LG&E Energy if the PowerGen board of directors withdraws or adversely
modifies its approval or recommendation of the merger agreement;
- by LG&E Energy, before its shareholders approve the merger agreement, if
an unsolicited third party has made an acquisition proposal that the LG&E
Energy board of directors determines in good faith is a superior proposal,
and LG&E Energy concurrently with such termination enters into a
definitive agreement containing the terms of the superior proposal, gives
PowerGen not less than five business days' notice of the terms of the
superior proposal and pays PowerGen the termination fee and expense
reimbursement described below;
- by LG&E Energy if PowerGen has materially breached the merger agreement in
a manner that is not curable and that would permit LG&E Energy under the
merger agreement not to complete the merger;
- by PowerGen if LG&E Energy has materially breached the merger agreement in
a manner that is not curable and that would permit PowerGen under the
merger agreement not to complete the merger; or
- by PowerGen if the LG&E Energy board of directors withdraws or adversely
modifies its adoption or recommendation of the merger agreement or
approves or recommends a superior proposal; or if securities or assets of
LG&E Energy are issued or delivered pursuant to LG&E Energy's rights
agreement.
EFFECT OF TERMINATION. LG&E Energy and PowerGen have agreed that, if either
of them terminates the merger agreement, the merger agreement--except for the
provisions concerning expenses, termination fees, confidentiality of
information, waiver of a jury trial and certain damages, enforcement of the
agreement and other provisions set forth in Article IX of the merger
agreement--will become void and have no effect, without any liability on the
part of any party, their officers, directors, employees, agents, legal and
financial advisors or other representatives; however, termination of the merger
agreement does not relieve LG&E Energy or PowerGen from liability for a willful
and material breach of the merger agreement. The parties have agreed in the
merger agreement that PowerGen's failure to deliver the cash consideration for
the shares of LG&E Energy common stock at the completion of the merger will not
be deemed to be a material and willful breach of the merger agreement if
PowerGen has complied with its covenant to use its commercially reasonable
efforts to obtain financing. In addition, the parties have agreed that if LG&E
Energy or PowerGen is or becomes obligated to pay a termination fee as described
below, the other party's right to receive the termination fee will be its only
remedy for damages with respect to the facts and circumstances giving rise to
the termination fee obligation except for any willful and material breach of the
merger agreement as discussed above. No party is permitted to bring a claim for
damages for any inaccuracy of a representation or warranty contained in the
merger agreement except in connection with the termination of the merger
agreement.
In the merger agreement, LG&E Energy and PowerGen have agreed to the payment
of a termination fee and the reimbursement of expenses in connection with the
termination of the merger agreement as described above, as follows:
(1) LG&E Energy will pay PowerGen a termination fee of $90 million and
reimburse PowerGen's costs and expenses up to $10 million if LG&E
Energy's board of directors terminates the merger agreement to enter into
a superior proposal, withdraws or adversely modifies its adoption or
recommendation of the merger agreement, adopts or recommends a superior
proposal or enters into such proposal, or if securities or assets are
issued or delivered pursuant to the terms of the LG&E Energy rights
agreement;
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(2) PowerGen will pay LG&E Energy a termination fee of $90 million and
reimburse LG&E Energy's costs and expenses up to $10 million if
PowerGen's board of directors withdraws or adversely modifies its
adoption or recommendation of the merger, or if PowerGen fails to deliver
the cash necessary to pay for the LG&E Energy shares in the merger as
described above; and
(3) If the merger agreement is terminated by LG&E Energy or PowerGen as a
result of a material breach of the merger agreement by the other or
because the other's shareholders have failed to approve the merger
agreement, the party that breached the agreement or whose shareholders
failed to approve the agreement will promptly reimburse the other's costs
and expenses up to $10 million, although expenses will only be reimbursed
in the case of one party's shareholders failing to approve the merger
agreement, if the other party's shareholders do approve the merger
agreement. In addition, if the party that reimbursed the other's expenses
thereafter enters into an acquisition agreement or completes a
transaction related to an acquisition agreement within 18 months from the
date of termination, it will pay the other a fee of $90 million. This
$90 million fee will only be payable, however, if prior to the time a
party's shareholders failed to approve the merger agreement, an
acquisition proposal with respect to such party had been made public or
at or prior to the time the merger agreement was terminated as a result
of a material breach, an acquisition proposal had either been made to
such breaching party or been made public.
AMENDMENT. Subject to the provisions of applicable law, the parties may
amend the merger agreement at any time before the effective time of the merger,
whether or not the LG&E Energy shareholders or PowerGen shareholders have
approved the agreement.
WAIVER. At any time before the effective time of the merger the parties may
extend the time for the performance of any of the obligations of the merger
agreement or waive any inaccuracies in any of the representations and warranties
made in the merger agreement. Compliance with any of the conditions contained in
the merger agreement for the sole benefit of one party may be waived by such
party in whole or in part to the extent permitted by applicable law. Any
agreement on the part of a party to any such extension or waiver must be set
forth in a written instrument signed on behalf of such party.
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THE COMPANIES
LG&E ENERGY CORP.
220 West Main Street
Louisville, Kentucky 40202
(502) 627-2000
LG&E Energy is a holding company engaged, through its subsidiaries, in
retail utility services, energy marketing, power generation and project
development. LG&E Energy owns LG&E, which is an operating public utility that
supplies natural gas to approximately 289,000 customers and electricity to
approximately 360,000 customers in Louisville and adjacent areas in Kentucky.
LG&E's service area covers approximately 700 square miles in 17 counties and has
an estimated population of one million. Included in this area is the Fort Knox
Military Reservation, to which LG&E transports gas and provides electric
service, but which maintains its own distribution systems. LG&E also provides
gas service in limited additional areas. LG&E's coal-fired electric generating
plants, which are all equipped with systems to remove sulfur dioxide, produce
most of the electricity; the remainder is generated by a hydroelectric power
plant and combustion turbines. LG&E Energy also owns KU, a public utility that
provides electricity to approximately 450,000 customers in over 600 communities
and adjacent suburban and rural areas in 77 counties in central, southeastern
and western Kentucky, and to about 29,800 customers in five counties in
southwestern Virginia. In Virginia, KU operates under the name Old Dominion
Power Company. The territory served by KU has an aggregate population of
approximately 1,000,000, which includes Lexington, Kentucky. The territory
served includes most of the Bluegrass Region of central Kentucky and parts of
the coal mining areas in southeastern and western Kentucky and southwestern
Virginia. Through its non-utility subsidiaries, LG&E Energy has interests in and
operates power plants in several states, Argentina and Spain, and three gas
distribution companies in Argentina. Through a non-utility subsidiary, LG&E
Energy also leases and operates three coal fired electric generating facilities
of Big Rivers Electric Corporation. In addition, LG&E Energy through a
non-utility subsidiary operates and maintains the Station Two generating
facility of the City of Henderson, Kentucky. The combined generating capacity of
these facilities amounts to approximately 1,700 MW, net of Henderson's capacity
and energy needs. Additional information concerning LG&E Energy and its
subsidiaries is included in the LG&E Energy documents filed with the SEC, which
are incorporated by reference herein.
POWERGEN PLC
PowerGen is one of United Kingdom's leading integrated electricity and gas
companies. PowerGen has 2.6 million electricity and gas customers in England and
Wales. PowerGen produces enough electricity to power the homes of around
11 million people in England and Wales. PowerGen is the leading supplier of
electricity to British industry and commerce. PowerGen is the United Kingdom's
largest user of gas and a leading gas trader. PowerGen is also a leading
developer and operator of combined heat and power plants.
In 1998, East Midlands Electricity, which at that time was the third largest
electricity distribution company in England and Wales, was acquired by PowerGen.
Its franchise area covers around 16,000 square kilometers and 67,000 km of
lines.
PowerGen has also built an international power generation business and to
date, has been involved in 11 power projects (totaling more than 8,000 MW) in
Germany, Portugal, Hungary, India, Indonesia, Thailand, South Korea and
Australia.
As a low cost, innovative and environmentally responsible operator, PowerGen
delivers value and quality to its customers, shareholders, employees, partners
and the communities in which it operates throughout the world.
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PROPOSAL NO. 2
ELECTION OF DIRECTORS
The number of members of the board of directors of LG&E Energy is currently
fixed at thirteen, pursuant to LG&E Energy'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.
At the annual meeting, the following four persons are proposed for election
to the board of directors for three-year terms expiring at the 2003 annual
meeting:
William C. Ballard, Jr.
T. Ballard Morton, Jr.
William L. Rouse, Jr.
Charles L. Shearer
All of the nominees are presently directors of LG&E Energy, LG&E and 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.
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. 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."
As described in "THE MERGER--DIRECTORS AND OFFICERS" on page 24, the board
of directors of LG&E Energy after the merger is completed will consist of two
directors of Merger Sub and one current director or officer from LG&E Energy.
Accordingly, the remaining directors of LG&E Energy will cease to serve as
directors of LG&E Energy in the event the merger is completed.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION
OF THE FOUR NOMINEES AS DIRECTORS OF LG&E ENERGY.
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INFORMATION ABOUT DIRECTORS AND NOMINEES
The following contains certain information as of February 25, 2000,
concerning the nominees for director, as well as the directors whose terms of
office continue after the annual meeting.
NOMINEES FOR DIRECTORS WITH TERMS EXPIRING AT 2003 ANNUAL MEETING OF
SHAREHOLDERS
WILLIAM C. BALLARD, JR. (AGE 58)
Mr. Ballard has been of counsel to the law firm of Greenebaum Doll &
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. and Mid-America Bancorp.
T. BALLARD MORTON, JR. (AGE 66)
Mr. Morton has been Executive in Residence at the College of Business 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.
WILLIAM L. ROUSE, JR. (AGE 67)
Mr. Rouse was Chairman of the Board and Chief Executive Officer and 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, [Arch Coal, Inc.] and Kentucky-American
Water Company, a subsidiary of American Water Works Company, Inc.
CHARLES L. SHEARER, PH.D. (AGE 57)
Dr. Shearer has been President of Transylvania University since July 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.
DIRECTORS WHOSE TERMS EXPIRE AT 2001 ANNUAL MEETING OF SHAREHOLDERS
OWSLEY BROWN II (AGE 57)
Mr. Brown has been the Chairman and Chief Executive Officer of Brown-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.
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J. DAVID GRISSOM (AGE 61)
Mr. Grissom has been Chairman of Mayfair Capital, Inc., a private 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.
CAROL M. GATTON (AGE 67)
Mr. Gatton has been Chairman and Director of Area Bancshares 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 53)
Dr. Todd has been President and Chief Executive Officer and director of
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.
DIRECTORS WHOSE TERMS EXPIRE AT 2002 ANNUAL MEETING OF SHAREHOLDERS
MIRA S. BALL (AGE 65)
Mrs. Ball has been Secretary-Treasurer and Chief Financial Officer of 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 56)
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 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 55)
Mr. Lewis is a founding partner of the law firm of Lewis & Munday, a
Professional Corporation, in Detroit, Michigan. Since 1972, Mr. Lewis has served
as Chairman of the Board and a Director of the
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<PAGE>
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.
ANNE H. MCNAMARA (AGE 52)
Mrs. McNamara has been Senior Vice President and General Counsel of AMR
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 68)
Mr. Ramsey has been President and a Director of Dixon Bank, Dixon, 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.
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 and a Nominating and Governance
Committee. Pursuant to board and committee resolutions, the Long-Range Planning
Committee was discontinued in December 1999. 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 boards of directors.
During 1999, there were a total of 8 meetings of the LG&E Energy board. All
directors attended 75% or more of the total number of meetings of the board of
directors and committees of the board on which they served.
COMPENSATION OF DIRECTORS
Directors who are also officers of LG&E Energy or its subsidiaries receive
no compensation in their capacities as directors. During 1999, 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 1999.
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 annual 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
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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 such as the proposed merger
with PowerGen 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.
Accordingly, if the merger with PowerGen described in Proposal No. 1 is
completed, each share equivalent will be converted into the right to receive
$24.85 in cash, without interest.
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 18, 2000, 7 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 LG&E Energy 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 295,000 shares are subject to existing
options at a weighted average per share price of $21.93. 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 54 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. As described in Proposal
No. 1 under "INTERESTS OF CERTAIN PERSONS IN THE MERGER--TREATMENT OF STOCK
OPTIONS OF DIRECTORS AND EMPLOYEES," on page 31, options held by a director
under the Directors' Option Plan will be converted upon completion of the merger
at the director's election into either options to acquire ADS's of PowerGen or
cash.
AUDIT COMMITTEE
The Audit Committee of the Board is composed of Messrs. Ballard, Brown,
Gatton, Grissom, Lewis and Ramsey, Mrs. Ball and Drs. Shearer and Todd. During
1999, the Audit Committee maintained direct contact with the independent
auditors and LG&E Energy's Internal Auditor to review
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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 four times during 1999.
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, Grissom, Morton, Ramsey and Rouse and Mrs. McNamara. The
Compensation Committee met five times during 1999.
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 three times during 1999.
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OWNERSHIP OF LG&E ENERGY COMMON STOCK
LG&E Energy does not know of any shareholder who, as of February 25, 2000,
beneficially owned more than five percent of LG&E Energy's outstanding common
stock.
The table below shows information as of February 25, 2000, concerning
beneficial ownership by each director, each nominee for director, each executive
officer named in the Summary Compensation Table beginning on page 62 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 PERCENT OF
NAME OF BENEFICIAL OWNER (1)(2)(3) SHARES
- ------------------------ ------------ ----------
<S> <C> <C>
Mira S. Ball 27,770 *
William C. Ballard, Jr. 43,104 *
Owsley Brown II 29,830 *
R. Foster Duncan 116,204 *
Carol M. Gatton 78,596 *
J. David Grissom 30,915 *
Roger W. Hale 567,115 *
David B. Lewis 25,400 *
John R. McCall 107,732 *
Anne H. McNamara 35,486 *
T. Ballard Morton, Jr. 46,891 *
Frank V. Ramsey, Jr. 28,665 *
William R. Rouse, Jr. 28,215 *
Charles L. Shearer 15,192 *
Victor A. Staffieri 219,196 *
Lee T. Todd, Jr. 11,070 *
Stephen R. Wood 133,638 *
All Directors and Executive Officers as a group
(27 persons)(4) 1,623,116 1.25%
</TABLE>
- ------------------------
* Less than 1%.
(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 25, 2000, as follows: Mrs. Ball, 6,032; Mr. Brown,
3,830; Mr. Gatton, 3,926; Mrs. McNamara, 10,867; Mr. Morton, 16,891;
Mr. Ramsey, 18,327; Mr. Rouse, 18,545; Dr. Shearer, 4,451; and Dr. Todd,
2,235. 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 25,
2000, as follows: Mr. Hale, 371,752 shares; Mr. Duncan, 115,704 shares;
Mr. McCall, 104,214 shares; Mr. Staffieri, 209,388 shares and Mr. Wood,
122,665 shares.
(3) Includes the following shares subject to stock options granted under the
Directors' Option Plan, exercisable within 60 days following February 25,
2000: 24,000 shares for each of Messrs. Ballard, Brown, Grissom, Lewis and
Morton; 23,000 shares for Mrs. McNamara; and 8,000 shares for each of
Messrs. Gatton, Ramsey and Rouse, Mrs. Ball, and Drs. Shearer and Todd.
(4) In the case of executive officers, the share total shown includes 1,330,224
stock options granted under LG&E Energy's Omnibus Long-Term Incentive Plan,
exercisable within 60 days of February 25, 2000.
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PROPOSAL NO. 3
APPROVAL OF INDEPENDENT AUDITORS FOR 2000
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, 2000. 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 21, 1999.
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 non-votes are treated as shares not voted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL
OF THE APPOINTMENT OF THE INDEPENDENT AUDITORS.
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REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Committee of the Board of Directors ("Committee") 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 LG&E Energy's Omnibus Long-Term Incentive Plan (the "Long-Term
Plan") and Short-Term Incentive Plan (the "Short-Term Plan"), each as defined
herein.
LG&E Energy'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 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 Committee
addressing LG&E Energy's compensation policies during 1999 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
Committee believes that LG&E Energy'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 61 of this proxy statement.
Pursuant to this competitive market positioning philosophy, in establishing
compensation levels for all executive positions for 1999, the 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 1999 to approach the 50th percentile of the
competitive range from the Survey Group. Salaries, short-term incentives and
long-term incentives for 1999 are described below.
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The 1999 compensation information set forth in other sections of this proxy
statement, particularly with respect to the tabular information presented,
reflects the considerations set forth in this report. The Base Salary,
Short-Term Incentives, and Long-Term Incentives sections that follow address the
compensation philosophy for 1999 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 "REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION--CHIEF EXECUTIVE OFFICER COMPENSATION" on pages 59-60 of
this proxy statement for a description of his 1999 compensation).
BASE SALARY
The base salaries for LG&E Energy executive officers for 1999 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
The Short-Term Plan provides for Company Performance Awards and Individual
Performance Awards, each of which is expressed as a percentage of base salary
and each of which is determined independent of the other. The committee
established the performance goals for LG&E Energy Performance Awards and
Individual Performance Awards at the beginning of the 1999 performance year.
Payment of Company Performance Awards for executive officers was based 100% on
Net Income Available for common stock ("NIAC"), including certain adjustments
deemed appropriate by the Committee. Payment of Individual Performance Awards
was based 100% on Management Effectiveness, which includes a customer
satisfaction element for certain participants. The awards varied within the
executive officer group based upon the nature of each individual's functional
responsibilities, with more senior officers having a greater short-term award
opportunity.
For 1999, LG&E Energy Performance Award targets for executive officers
ranged from 21% to 36% of base salary, and the Individual Performance Award
targets ranged from 14% to 24% 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 1999 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.
Based upon applicable performance relative to the established targets,
payouts of Company Performance Awards for 1999 to the executive officers ranged
from 20% to 41% of base salary, and payouts for the Individual Performance
Awards to the executive officers ranged from 13% to 40% 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 Committee administers the Long-Term Plan. The
Long-Term Plan provides for the grant of any or all of the following types of
awards: stock options, stock appreciation rights, restricted stock, performance
units and performance shares. In 1999, the Committee chose to award stock
options and performance units to executive officers.
57
<PAGE>
The 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 1999) 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
1999 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 LG&E Energy'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. As
described in Proposal No. 1, outstanding options will be converted upon the
effectiveness of the merger at the election of the holder of the option into
either options to acquire ADS's of PowerGen or cash. See "INTERESTS OF CERTAIN
PERSONS IN THE MERGER-TREATMENT OF STOCK OPTIONS OF DIRECTORS AND EMPLOYEES," on
page 31.
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 LG&E Energy'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 LG&E Energy's TSR performance (the
"Long-Term Plan Peer Group") consists of approximately 80 utility holding
companies and gas and electric utilities.(1) If the merger agreement is approved
by LG&E Energy's shareholders, all outstanding performance units will be paid
out in cash, based upon either the extent to which performance goals have been
met at such date (as determined by LG&E Energy's Compensation Committee), or on
the value of the award at the time of the grant, whichever amount is higher. See
"INTERESTS OF CERTAIN PERSONS IN THE MERGER-STOCK INCENTIVE PLANS," on page 28.
Under the Long-Term Plan, based on Company performance during the 1997-1999
period, no payouts of long-term incentive awards were made for such period.
During such period, LG&E Energy's performance was at the 4(th) percentile of its
comparison group with respect to TSR.
- ------------------------
(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 LG&E Energy Performance Graph on page 61 of
this proxy statement or the Survey Group. Nevertheless, in the judgment of
the Committee, the companies in the Long-Term Plan Peer Group continue to
represent the appropriate peer group for performance unit compensation
purposes.
58
<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 current employment agreement
(the "1998 Agreement") became effective in 1998 and provides for a term ending
on May 4, 2003. (See "EXECUTIVE COMPENSATION AND OTHER INFORMATION--EMPLOYMENT
CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE IN CONTROL
PROVISIONS" on pages 66-67 of this proxy statement.)
The 1998 Agreement established the minimum levels of Mr. Hale's 1999
compensation, although the Committee retains discretion to increase such
compensation. For 1999, the 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,
LG&E Energy 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 1999
compensation are set forth below.
BASE SALARY. Mr. Hale was paid a total base salary of $770,000 during 1999.
This amount was based upon the minimum salary amount provided in the 1998
Agreement, plus prior increases awarded by the Committee. The 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 1999 increase, granted in February 1999, was
10%.
SHORT-TERM INCENTIVES. Mr. Hale's target short-term incentive award was 65%
of his 1999 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
1999 short-term incentive payouts were based 60% on Company Performance Goals
and 40% on Individual Performance Goals.
For 1999, the Company Performance Award payout for Mr. Hale was 46% of his
1999 base salary and the Individual Performance Award payout was 46% of his 1999
base salary. The Committee considered Mr. Hale's effectiveness in several areas
in determining the final Individual Performance Award. These included the
financial and operational performance of LG&E Energy, LG&E, KU and other
subsidiaries, customer satisfaction ratings, Company growth and other measures.
LONG-TERM INCENTIVE GRANT. In 1999, Mr. Hale received 102,122 nonqualified
stock options and 39,346 performance units for the 1999-2001 performance period.
These amounts were determined in accordance with the terms of his 1998 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 and the treatment of any outstanding options or
performance units as a result of the merger described in Proposal No. 1) for
Mr. Hale are the same as for other executive officers, as described under the
heading "REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION--LONG-TERM INCENTIVES."
LONG-TERM INCENTIVE PAYOUT. Under the Long-Term Plan, based on Company
performance during the 1997-1999 period, no payout of long-term incentive awards
were made to Mr. Hale. During such period, LG&E Energy's performance was at the
4(th) percentile of its comparison group with respect to TSR.
59
<PAGE>
RESTRICTED STOCK GRANTS. During 1999, the Committee awarded Mr. Hale
135,000 shares of restricted stock under the Long-Term Plan as an inducement for
him to continue his employment with LG&E Energy. These awards are designed to
ensure Mr. Hale's continued leadership during the upcoming period of strategic
transition in the energy services industry and in recognition of increasing
competition among industry participants for the services of innovative chief
executive officers. These awards do not represent currently-realizable
compensation to Mr. Hale. Rather, these restricted shares, including reinvested
dividends, will vest only in the event of his continued employment with LG&E
Energy through May 4, 2003, the term of his current employment agreement. Prior
to their vesting, all restricted shares are subject to forfeiture upon
termination of Mr. Hale's employment for any reason other than death, disability
or termination following a change of control. Pursuant to Mr. Hale's new
employment agreement, which will only become effective if the merger is
completed, each share of restricted stock (including shares acquired with
reinvested dividends) will be converted into the right to receive $24.85 in
cash, without interest.
TAX MATTERS
Section 162(m) of the Code was enacted in 1993 and generally prohibits LG&E
Energy 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 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 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 1999 was not deductible.
CONCLUSION
The Committee believes that LG&E Energy's executive compensation system
served the interests of LG&E Energy and its shareholders effectively during
1999. The Committee takes very seriously its responsibilities with respect to
LG&E Energy's executive compensation system, and it will continue to monitor and
revise the compensation policies as necessary to ensure that LG&E Energy's
compensation system continues to meet the needs of LG&E Energy and its
shareholders.
MEMBERS OF THE COMMITTEE
J. David Grissom, Chairman
Carol M. Gatton
Anne H. McNamara
T. Ballard Morton, Jr.
William L. Rouse, Jr.
Lee T. Todd, Jr.
60
<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, 1994, through December 31, 1999, with the
Standard & Poor's 500 Composite Index and the Standard & Poor's Utility Index.
The comparisons in this table are required by the SEC and, therefore, are not
intended to forecast or be indicative of possible future performance of LG&E
Energy common stock.
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL SHAREHOLDER RETURN (1)
[Graph omitted for EDGAR filing]
DATA POINTS (IN $)
<TABLE>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
LG&E Energy 100 121 146 155 184 122
S&P Utilities 100 141 145 179 205 187
S&P 500 100 137 168 224 287 347
</TABLE>
- ------------------------
(1) Total Shareholder Return assumes $100 invested on December 31, 1994, with
quarterly reinvestment of dividends.
61
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table shows the cash compensation paid or to be paid by LG&E
Energy or any of its subsidiaries, as well as certain other compensation paid or
accrued for those years, to the Chief Executive Officer and the next four
highest compensated executive officers of LG&E Energy who were serving as such
at December 31, 1999, in all capacities in which they served during 1997, 1998
and 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- --------------------------- ------------
SECURITIES
OTHER RESTRICTED UNDERLYING ALL OTHER
ANNUAL STOCK OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS COMP. AWARDS SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)(1) ($)
- -------------------------- -------- -------- -------- -------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Roger W. Hale 1999 770,000 703,800 47,599 2,919,489 102,122 0 55,596(2)
Chairman of the Board 700,000 649,800 32,301 See note (3) 133,588 See note (1) 36,191
and Chief Executive 1998 580,000 311,808 18,212 -- 67,728 821,272 26,675
Officer 1997 -- 313,037
Victor A. Staffieri 1999 400,000 324,600 22,730 -- 53,050 0(1) 20,604(2)
President and Chief 1998 300,000 150,461 10,269 -- 45,802 166,611 15,590
Operating Officer 1997 270,000 159,064 8,063 -- 27,946 57,416 10,635
R. Foster Duncan 1999 325,000 215,188 52,440 -- 34,483 0(1) 15,623(2)
Executive Vice President 1998 262,903(4) 210,000 69,938(4) -- 81,221 -- 4,785
and Chief Financial
Officer
Stephen R. Wood 1999 285,000 166,127 6,854 -- 26,459 0(1) 18,593(2)
Group Executive--Retail 1998 265,000 120,711 7,373 -- 42,799 94,543 13,377
Business 1997 245,000 138,039 6,849 -- 15,605 32,306 8,721
John R. McCall 1999 300,000 204,930 7,171 -- 31,830 0(1) 17,252(2)
Executive Vice 1998 260,000 140,399 7,870 -- 34,733 96,635 15,582
President, General 1997 245,000 114,764 6,922 -- 15,605 32,306 11,414
Counsel and Corporate
Secretary
</TABLE>
- ------------------------
(1) Due to Company stock performance compared to peer group, no Long-Term Plan
payouts were made for 1997-1999 performance cycle.
(2) Includes employer contributions to 401(k) plan, nonqualified thrift plan and
employer paid life insurance premiums in 1999 as follows: Mr. Hale $4,358,
$18,288 and $32,950, respectively; Mr. Staffieri $4,860, $11,410 and $4,334,
respectively; Mr. Duncan $4,775, $10,113 and $735, respectively; Mr. Wood
$4,050, $8,121 and $6,422, respectively; and Mr. McCall $4,662, $8,250 and
$4,340, respectively.
(3) Amount shown represents dollar value of restricted stock awards, determined
by multiplying the number of shares in each award by the closing market
price as of the receipt date of grant. These awards do not represent
currently-realizable compensation to Mr. Hale. The restricted shares are
forfeited in the event Mr. Hale's employment is terminated for any reason
prior to May 4, 2003, the term of his current employment agreement, other
than due to death, disability or termination following a change in control.
Under Mr. Hale's new employment agreement, the restricted shares will be
converted to a right to receive merger consideration of $24.85 per share in
cash, without interest. Income tax is payable upon the awards at the time of
their vesting. Dividends are paid in the form of additional grants of
restricted shares representing reinvested dividends and are subject to the
same vesting date and conditions as the initial grant. At December 31, 1999,
62
<PAGE>
the aggregate restricted stock holdings of Mr. Hale were 137,571 shares
($2,398,894) valued at such year-end closing market price.
(4) Reported compensation is only for a portion of the year. Mr. Duncan joined
LG&E Energy on January 12, 1998. "Other Annual Compensation" for that year
includes a relocation payment of $68,686.
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN 1999 FISCAL YEAR
The following table contains information at December 31, 1999, with respect
to grants of stock options and stock appreciation rights (SARs) to the named
executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
--------------------------------- REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL
SECURITIES TOTAL EXERCISE RATES OF STOCK
UNDERLYING OPTIONS/SARS OR BASE PRICE APPRECIATION
OPTIONS/SARS GRANTED TO PRICE FOR OPTION TERM
GRANTED EMPLOYEES IN ($/ EXPIRATION --------------------------------
NAME (#) (1) FISCAL YEAR SHARE) DATE 0%($) 5% ($) 10%($)
- -------------------------------- --------------- --------------- --------- ------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger W. Hale 102,122 16.8% 25.75 02/03/2009 0 1,653,767 3,819,887
Victor A. Staffieri 53,050 8.7% 25.75 02/03/2009 0 859,094 1,984,342
R. Foster Duncan 34,483 5.7% 25.75 01/03/2009 0 558,419 1,289,841
Stephen R. Wood 26,459 4.3% 25.75 02/03/2009 0 428,478 989,702
John R. McCall 31,830 5.2% 25.75 02/03/2009 0 515,456 1,190,605
</TABLE>
- ------------------------
(1) Options are awarded at fair market value at time of grant; unless otherwise
indicated, options vest in one year and are exercisable over a ten-year
term.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN 1999 FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table sets forth information with respect to the named
executive officers concerning the exercise of options and/or SARs during 1999
and the value of unexercised options and SARs held by them as of December 31,
1999:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS/SARS
ACQUIRED OPTIONS/SARS AT FY-END
ON VALUE AT FY-END (#) ($)(1)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ---------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
Roger W. Hale 0 N/A 269,630/102,122 /
Victor A. Staffieri 0 N/A 151,338/53,050 /
R. Foster Duncan 0 N/A 81,221/34,413 /
Stephen R. Wood 0 N/A 88,808/26,459 29,956/
John R. McCall 0 N/A 72,384/31,830 /
</TABLE>
- ------------------------
(1) Dollar amounts reflect market value of LG&E Energy common stock at year-end,
minus the exercise price.
63
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN 1999 FISCAL YEAR
The following table provides information concerning awards made in 1999 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 39,346 12/31/2001 15,738 39,346 59,019
Victor A. Staffieri 10,220 12/31/2001 4,088 10,220 15,380
R. Foster Duncan 6,643 12/31/2001 2,657 6,643 9,965
Stephen R. Wood 5,097 12/31/2001 2,039 5,097 7,646
John R. McCall 6,132 12/31/2001 2,453 6,132 9,198
</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 1999, 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 1999 are
reported in the summary compensation table for the year of payout.
64
<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 LG&E Energy and its subsidiaries:
1999 PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------
REMUNERATION 15 20 25 30 OR MORE
- --------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$100,000 $47,524 $47,524 $47,524 $55,433
$150,000 $79,524 $79,524 $79,524 $85,133
$200,000 $111,524 $111,524 $111,524 $111,524
$250,000 $143,524 $143,524 $143,524 $143,524
$300,000 $175,524 $175,524 $175,524 $175,524
$350,000 $207,524 $207,524 $207,524 $207,524
$400,000 $239,524 $239,524 $239,524 $239,524
$450,000 $271,524 $271,524 $271,524 $271,524
$500,000 $303,524 $303,524 $303,524 $303,524
$550,000 $335,524 $335,524 $335,524 $335,524
$600,000 $367,524 $367,524 $367,524 $367,524
$650,000 $399,524 $399,524 $399,524 $399,524
$700,000 $431,524 $431,524 $431,524 $431,524
$750,000 $463,524 $463,524 $463,524 $463,524
$800,000 $495,524 $495,524 $495,524 $495,524
$850,000 $527,524 $527,524 $527,524 $527,524
$900,000 $559,524 $559,524 $559,524 $559,524
$950,000 $591,524 $591,524 $591,524 $591,524
$1,000,000 $623,524 $623,524 $623,524 $623,524
$1,050,000 $655,524 $655,524 $655,524 $655,524
$1,100,000 $687,524 $687,524 $687,524 $687,524
$1,150,000 $719,524 $719,524 $719,524 $719,524
$1,200,000 $751,524 $751,524 $751,524 $751,524
$1,250,000 $783,524 $783,524 $783,524 $783,524
$1,300,000 $815,524 $815,524 $815,524 $815,524
$1,350,000 $847,524 $847,524 $847,524 $847,524
$1,400,000 $879,524 $879,524 $879,524 $879,524
$1,450,000 $911,524 $911,524 $911,524 $911,524
$1,500,000 $943,524 $943,524 $943,524 $943,524
$1,550,000 $975,524 $975,524 $975,524 $975,524
$1,600,000 $1,007,524 $1,007,524 $1,007,524 $1,007,524
$1,650,000 $1,039,524 $1,039,524 $1,039,524 $1,039,524
$1,700,000 $1,071,524 $1,071,524 $1,071,524 $1,071,524
</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
65
<PAGE>
named executive employed by LG&E Energy at December 31, 1999 is as follows:
33 years for Mr. Hale; 2 years for Mr. Duncan; 5 years for Mr. McCall; 10 years
for Mr. Wood; and 7 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 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 prior
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 prior employment agreement.
The special plan will terminate as of the closing of the merger, pursuant to
Mr. Hale's new employment agreement with LG&E Energy dated as of February 25,
2000. See "THE MERGER--INTERESTS OF CERTAIN PERSONS IN THE MERGER--NEW
EMPLOYMENT AGREEMENTS" on pages 28-31 of this proxy statement.
The estimated annual benefits to be received under the Retirement Income
Plan and the Supplemental Executive Retirement Plan upon normal retirement at
age 65 and after deduction of Social Security benefits will be $789,649 for
Mr. Hale; $294,692 for Mr. Duncan; $275,189 for Mr. McCall; $386,836 for
Mr. Staffieri; and $260,172 for Mr. Wood.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
ARRANGEMENTS AND CHANGE IN CONTROL PROVISIONS
On May 20, 1997, Mr. Hale entered into an employment agreement with LG&E
Energy for services to be provided to LG&E Energy and its subsidiaries,
including LG&E and KU with 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 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 a life insurance policy in the
amount of not less than $2 million shall be provided to Mr. Hale at LG&E
Energy's expense. 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.
Mr. Hale has agreed that this agreement will terminate effective as of the
closing of the merger.
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
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such officers of LG&E Energy shall be entitled to the following payment 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: (1) all accrued compensation; (2) 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 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 merger and acquisitions, changes in Board
membership and acquisitions of voting securities of LG&E Energy, and will
include the merger with PowerGen. Mr. Hale has agreed that this agreement shall
terminate effective as of the closing of the merger, and in consideration of
this termination, Mr. Hale has entered into a new employment agreement with LG&E
Energy dated as of February 25, 2000. In addition, Mr. Hale and four senior
executives agreed to terminate their current change in control agreements with
LG&E Energy, in exchange for entering into new employment and change in control
severance agreements. See "THE MERGER--INTERESTS OF CERTAIN PERSONS IN THE
MERGER--NEW EMPLOYMENT AGREEMENTS" on pages 28-31 of this proxy statement.
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 either the
extent to which the performance goals have been met through the effective date
of the change in control (as determined by LG&E Energy's Compensation
Committee), or the value of the award at the time of the grant, whichever amount
is higher. Additionally, executives shall receive continuation of certain
welfare benefits and payments in respect of accrued but unused vacation days and
for out-placement assistance.
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,
LG&E Energy believes that during the year ended December 31, 1999, all filing
requirements have been complied with.
SHAREHOLDER PROPOSALS
FOR 2001 ANNUAL MEETING
If the merger is completed prior to LG&E Energy's annual meeting for 2001,
LG&E Energy will not hold an annual meeting of shareholders in 2001. If the
merger has not been completed by this time, LG&E Energy will hold an annual
meeting of shareholders in 2001. Any shareholder may submit a proposal for
consideration at the 2001 annual meeting. Any shareholder desiring to submit a
proposal for inclusion in the proxy statement for consideration at the 2001
annual meeting should forward the proposal so that it will be received at LG&E
Energy's principal executive offices no later than [PROPOSAL DATE]. Proposals
received by that date that are proper for consideration at the annual meeting
and otherwise conforming to the rules of the SEC will be included in the 2001
proxy statement.
Under LG&E Energy'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 LG&E Energy (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
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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. Any such matter must comply with those provisions of
LG&E Energy's Articles of Incorporation requiring advance notice for new
business to be acted upon at the meeting. The Board of Directors knows of no
other matters that may be presented at the meeting.
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 1999 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.
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of Arthur Anderson LLP expects to be present at the annual
meeting and will be available to respond to appropriate questions from
shareholders in attendance. Although this representative has stated that he does
not intend to make any statements at the annual meeting, he will have the
opportunity to do so.
WHERE YOU CAN FIND MORE INFORMATION
LG&E Energy files annual, quarterly and current reports, proxy statements,
and other information with the SEC. Anything LG&E Energy files with the SEC may
be read and copied at the following locations at the SEC:
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Public Reference Room New York Regional Office Chicago Regional Office
Room 1024, Judiciary Plaza Suite 1300 Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center Suite 1400
Washington, DC 20549 New York, New York 10048 500 West Madison Street
Chicago, Illinois 60661
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Please call the SEC at 1-800-732-0330 for further information on the public
reference rooms. LG&E Energy's SEC filings should also be available to the
public from commercial document retrieval services and at the Internet world
wide web site that the SEC maintains at HTTP://WWW.SEC.GOV. In addition,
materials and information concerning LG&E Energy can be inspected at the New
York Stock Exchange, 20 Broad Street, 7th Floor, New York, New York 10005, and
at the Chicago Stock Exchange, 440 South LaSalle Street, Chicago, Illinois
60605-1070, where LG&E Energy shares are listed.
If you are an LG&E Energy shareholder, we may have already sent you some of
our SEC filings. Nevertheless, you may obtain any of them through us, the SEC,
or the SEC's Internet world wide web site as previously described. You may
obtain copies of LG&E Energy's SEC filings by requesting them in writing or by
telephone at the following address:
LG&E ENERGY CORP.
220 West Main Street
Louisville, Kentucky 40202
(502) 627-2000
Attn: Secretary
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If you would like to request documents from LG&E Energy, please do so no
later than [REQUEST DATE] in order to receive them before the annual meeting.
LG&E Energy has provided all information contained in this document with
respect to LG&E Energy and its subsidiaries. PowerGen has provided all
information contained in this document with respect to PowerGen. Neither LG&E
Energy nor PowerGen assumes any responsibility to verify the accuracy or
completeness of the information provided by the other party.
NO PERSON HAS BEEN AUTHORIZED BY US TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY US. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, IMPLY OR
CREATE ANY IMPLICATION THAT THERE HAVE NOT BEEN ANY CHANGES IN THE AFFAIRS OF
LG&E ENERGY OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE
HEREOF.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
AMONG
POWERGEN PLC,
LG&E ENERGY CORP.,
US SUBHOLDCO 2
AND
MERGER SUB
DATED AS OF FEBRUARY 27, 2000
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TABLE OF CONTENTS
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RECITALS.................................................................. 1
ARTICLE I
The Merger; Closing; Effective Time..................................... 2
1.1. Merger Sub; The Merger........................................... 2
1.2. Closing.......................................................... 2
1.3. Effective Time................................................... 3
ARTICLE II
Articles of Incorporation and By-Laws of the Surviving Corporation...... 3
2.1. The Articles of Incorporation.................................... 3
2.2. The By-Laws...................................................... 3
ARTICLE III
Officers and Directors of the Surviving Corporation..................... 4
3.1. Directors........................................................ 4
3.2. Officers......................................................... 4
3.3. Surviving Corporation Chief Executive............................ 4
ARTICLE IV
Effect of the Merger on Capital Stock;Exchange of Certificates.......... 5
4.1. Effect on Capital Stock.......................................... 5
(a) Merger Consideration........................................ 5
(b) Cancellation of Shares...................................... 5
(c) Merger Sub.................................................. 6
4.2. Exchange of Cash for Shares...................................... 6
(a) Paying Agent................................................ 6
(b) Payment Procedures.......................................... 6
(c) Transfers................................................... 7
(d) Termination of Exchange Fund................................ 7
(e) Lost, Stolen or Destroyed Certificates...................... 8
(f) Withholding of Tax.......................................... 8
4.3. Dissenters' Rights............................................... 9
4.4. Adjustments to Prevent Dilution.................................. 9
ARTICLE V
Representations and Warranties.......................................... 10
5.1. Representations and Warranties of the Company.................... 10
(a) Organization, Good Standing and Qualification............... 10
(b) Capital Structure........................................... 11
(c) Corporate Authority; Approval and Fairness.................. 12
(d) Governmental Filings; No Violations......................... 13
(e) Company Reports; Financial Statements....................... 15
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(f) Absence of Certain Changes.................................. 16
(g) Litigation and Liabilities.................................. 17
(h) Employee Benefits........................................... 17
(i) Compliance with Laws; Government Investigations; Permits.... 20
(j) Takeover Statutes........................................... 21
(k) Environmental Matters....................................... 21
(l) Taxes....................................................... 23
(m) Labor Matters............................................... 25
(n) Intellectual Property....................................... 27
(o) Insurance................................................... 27
(p) Rights Agreement............................................ 28
(q) Brokers and Finders......................................... 28
(r) Year 2000................................................... 29
(s) Regulatory Proceedings...................................... 29
(t) Regulation as a Utility..................................... 29
(u) Ownership of Shares......................................... 30
(v) Compliance with Agreements.................................. 30
(w) Joint Ventures.............................................. 30
(x) Derivative Products......................................... 31
(y) OPC and Electric Rate Case Information...................... 32
5.2. Representations and Warranties of Parent......................... 33
(a) Capitalization of Merger Sub and US Subholdco 2............. 33
(b) Organization, Good Standing and Qualification............... 33
(c) Corporate Authority......................................... 34
(d) Governmental Filings; No Violations......................... 34
(e) Parent Reports.............................................. 36
(f) Takeover Statutes........................................... 37
(g) Ownership of Shares......................................... 37
(h) Funds for the Merger Consideration.......................... 37
(i) Share Capital............................................... 37
(j) Litigation.................................................. 38
(k) Regulation as a Utility..................................... 38
(l) OPC and Electric Rate Case Disclosure....................... 38
ARTICLE VI
Covenants............................................................... 39
6.1. Transition Group; 2001 Budget.................................... 39
6.2. Interim Operations............................................... 40
6.3. Acquisition Proposals............................................ 46
6.4. Accuracy of Proxy Statement and Circular......................... 49
6.5. Shareholders Meetings............................................ 50
6.6. Filings; Other Actions; Notification............................. 51
6.7. (a) Access...................................................... 53
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6.8. Stock Exchange De-listing........................................ 54
6.9. Publicity........................................................ 54
6.10. Certain Employee Agreements and Workforce Matters................ 54
6.11. Benefits......................................................... 54
(a) Stock Options............................................... 54
(b) Employee Benefits........................................... 56
(c) Long-Term Incentive Plan.................................... 57
(d) Election to Parent's Board of Directors..................... 57
(e) Advisory Board.............................................. 57
6.12. Expenses......................................................... 57
6.13. Indemnification; Directors' and Officers' Insurance.............. 58
6.14. Takeover Statutes................................................ 61
6.15. Financing........................................................ 61
6.16. Tax-Exempt Status................................................ 61
6.17. PUHCA; Regulatory Status......................................... 62
6.18. Derivative Products.............................................. 62
6.19. Post-Merger Operations........................................... 63
6.20. Control of Other Party's Business................................ 64
6.21. Third Party Standstill Agreements................................ 64
6.22. Certain Mergers.................................................. 65
6.23. Necessary Action................................................. 65
6.24. Further Assurances............................................... 65
6.25. Conduct of Business of Merger Sub and US Subholdco 2............. 66
ARTICLE VII
Conditions.............................................................. 67
7.1. Conditions to Each Party's Obligation to Effect the Merger....... 67
(a) Stockholder Approval........................................ 67
(b) Regulatory Consents......................................... 67
(c) Litigation.................................................. 68
7.2. Conditions to Obligations of Parent and Merger Sub............... 68
(a) Representations and Warranties.............................. 68
(b) Performance of Obligations of the Company................... 69
(c) Consents Under Agreements................................... 69
(d) PUHCA Approval.............................................. 69
(e) Material Adverse Effect..................................... 70
(f) Competition Commission...................................... 70
(g) Office of Gas and Electricity Markets....................... 70
(h) EC Approval................................................. 71
7.3. Conditions to Obligation of the Company.......................... 71
(a) Representations and Warranties.............................. 71
(b) Performance of Obligations of Parent and Merger Sub......... 72
(c) Employment Agreement........................................ 72
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(d) Consents Under Agreements................................... 72
ARTICLE VIII
Termination............................................................. 72
8.1. Termination by Mutual Consent.................................... 72
8.2. Termination by Either Parent or the Company...................... 72
8.3. Termination by the Company....................................... 73
8.4. Termination by Parent............................................ 74
8.5. Effect of Termination and Abandonment............................ 74
ARTICLE IX
Miscellaneous and General............................................... 77
9.1. Survival......................................................... 77
9.2. Modification or Amendment........................................ 78
9.3. Waiver of Conditions............................................. 78
9.4. Counterparts..................................................... 78
9.5. GOVERNING LAW AND VENUE; ENFORCEMENT; WAIVER OF JURY TRIAL....... 78
9.6. Notices.......................................................... 80
9.7. Entire Agreement................................................. 81
9.8. No Third Party Beneficiaries..................................... 81
9.9. Obligations of Parent and of the Company......................... 81
9.10. Transfer Taxes................................................... 81
9.11. Severability..................................................... 81
9.12. Interpretation................................................... 82
9.13. Assignment....................................................... 82
9.14. Successors....................................................... 83
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INDEX OF DEFINED TERMS
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Acquisition Proposal........................................ 46
ADS's....................................................... 55
Affiliate................................................... 17
Agreement................................................... 1
Approved Commodities........................................ 63
Articles.................................................... 3
Audit Date.................................................. 15
Bankruptcy and Equity Exception............................. 13
Business Day................................................ 3
By-Laws..................................................... 4
Certificate................................................. 5
Circular.................................................... 50
Closing..................................................... 2
Closing Date................................................ 3
Code........................................................ 18
Common Stock................................................ 5
Companies Act............................................... 11
Company..................................................... 1
Company Budget.............................................. 42
Company Disclosure Letter................................... 10
Company Employees........................................... 57
Company Labor Agreements.................................... 26
Company Material Adverse Effect............................. 11
Company Option.............................................. 12
Company Reports............................................. 15
Company Required Consents................................... 14
Company Required Statutory Approvals........................ 13
Company Requisite Vote...................................... 13
Compensation and Benefit Plans.............................. 17
Confidentiality Agreement................................... 81
Constituent Corporations.................................... 1
Contracts................................................... 14
Conversion Ratio............................................ 55
Costs....................................................... 58
Current Premium............................................. 60
D&O Insurance............................................... 60
Derivative Product.......................................... 32
Dissenters' Rights Statute.................................. 9
Dissenting Shareholders..................................... 5
Dissenting Shares........................................... 5
Effective Time.............................................. 3
Environmental Law........................................... 22
ERISA....................................................... 18
ERISA Affiliate............................................. 18
Exchange Act................................................ 13
Exchange Fund............................................... 6
Excluded Effects............................................ 11
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Excluded Share.............................................. 5
Excluded Shares............................................. 5
Exon-Florio................................................. 13
Extended Date............................................... 73
FERC........................................................ 13
Final Order................................................. 68
Financing Plan.............................................. 37
Governmental Consents....................................... 67
Governmental Entity......................................... 14
Hazardous Substance......................................... 23
HSR Act..................................................... 12
Indemnified Parties......................................... 58
Intellectual Property Rights................................ 27
IRS......................................................... 18
Joint Venture............................................... 11
KBCA........................................................ 2
Kentucky Articles of Merger................................. 3
knowledge................................................... 11
KPSC........................................................ 11
Law......................................................... 20
Laws........................................................ 20
LSE......................................................... 13
Merger...................................................... 1
Merger Consideration........................................ 5
Merger Sub.................................................. 1
Millennium Functionality.................................... 29
Notice of Superior Proposal................................. 49
NYSE........................................................ 13
OPC......................................................... 11
Order....................................................... 68
Out-of-Pocket Expenses...................................... 75
Parent...................................................... 1
Parent Acquisition Proposal................................. 77
Parent Audit Date........................................... 36
Parent Companies............................................ 5
Parent Disclosure Letter.................................... 33
Parent Material Adverse Effect.............................. 34
Parent Ordinary Shares...................................... 30
Parent Reports.............................................. 36
Parent Required Consents.................................... 36
Parent Required Statutory Approvals......................... 35
Parent Requisite Vote....................................... 34
Parent Stockholders Meeting................................. 50
Paying Agent................................................ 6
Pension Plan................................................ 18
Person...................................................... 7
Power Act................................................... 13
Proxy Statement............................................. 49
PUHCA....................................................... 15
Representatives............................................. 46
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Right....................................................... 5
Rights Agreement............................................ 5
SEC......................................................... 15
Section 16.................................................. 56
Securities Act.............................................. 13
Series A Preferred Stock.................................... 5
Share....................................................... 5
Shareholders Meeting........................................ 50
Shares...................................................... 5
Stock Plans................................................. 12
subsidiary.................................................. 10
Subsidiary.................................................. 11
Superior Proposal........................................... 48
Surviving Corporation....................................... 2
Takeover Statute............................................ 21
Tax......................................................... 24
Tax Returns................................................. 24
Taxable..................................................... 24
Taxes....................................................... 24
Termination Date............................................ 73
Trading Policies............................................ 63
Transition Committee........................................ 39
U.K. GAAP................................................... 36
U.S. GAAP................................................... 16
Undisclosed Company Joint Ventures.......................... 31
US Subholdco 2.............................................. 1
Voting Debt................................................. 12
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "AGREEMENT"), dated as
of February 27, 2000, among LG&E Energy Corp., a Kentucky corporation (the
"COMPANY"), PowerGen plc, an English public limited company ("PARENT"), a
Delaware corporation to be formed as an indirect wholly owned subsidiary of
Parent ("US SUBHOLDCO 2") and a Kentucky corporation to be formed as a direct
wholly owned subsidiary of US Subholdco 2 ("MERGER SUB," the Company and Merger
Sub sometimes being hereinafter collectively referred to as the "CONSTITUENT
CORPORATIONS").
RECITALS
WHEREAS, the respective boards of directors of each of Parent and the
Company have approved the merger of Merger Sub with and into the Company (the
"MERGER") and approved the Merger upon the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, the Company and Parent desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1. MERGER SUB; THE MERGER.
(a) Prior to the Effective Time (as defined in Section 1.3), Parent shall
cause US Subholdco 2 to be incorporated under the laws of the State of Delaware,
Merger Sub to be incorporated under the laws of the Commonwealth of Kentucky and
shall cause such other intermediate companies or partnerships to be organized
under the laws of appropriate jurisdictions, substantially in accordance with
the diagram set forth in Section 1.1 of the Parent Disclosure Letter (as defined
in Section 5.2); PROVIDED, HOWEVER, that Parent shall be permitted to utilize
alternative structural arrangements to consummate the merger and the other
transactions contemplated hereby (in which case Parent shall promptly inform the
Company of such structural changes) so long as none of the effects described in
clauses (A) through (D) of Section 6.22 could reasonably be expected to occur as
a result of the use of any such alternative arrangement. Prior to the Effective
Time, Parent shall cause each of US Subholdco 2 and Merger Sub to authorize,
execute and deliver this Agreement and assume its obligations as a party
hereunder.
(b) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time Merger Sub shall be merged with and into the
Company and the separate corporate existence of Merger Sub shall thereupon
cease. The Company shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "SURVIVING CORPORATION"), and the separate
corporate existence of the Company with all its liabilities, title to real
estate and other property and pending proceedings shall continue unaffected by
the Merger, except as set forth in Article II and Article III. The Merger shall
have the effects specified in the Kentucky Business Corporation Act of 1988, as
amended (the "KBCA").
1.2. CLOSING. The closing of the Merger (the "CLOSING") shall take place
(i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York
at 9:00 A.M. on the fifth Business Day (as defined below) after the last of the
conditions set forth in Article VII (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the satisfaction or
waiver of those conditions) shall be satisfied or waived in accordance with this
Agreement or (ii) at such other place
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and time and/or on such other date as the Company and Parent may agree in
writing (the "CLOSING DATE"). As used in this Agreement, the term "BUSINESS DAY"
shall mean any day other than a Saturday, Sunday or a day on which banks in
either New York City or the City of London, England are authorized or obligated
by law or executive order to close.
1.3. EFFECTIVE TIME. As soon as practicable following the Closing, the
Company and Parent will cause Articles of Merger (the "KENTUCKY ARTICLES OF
MERGER") to be executed, acknowledged and filed with the Secretary of State of
the Commonwealth of Kentucky as provided in Section 271B.11-050 of the KBCA. The
Merger shall become effective on the date when the Kentucky Articles of Merger
have been duly filed with the Secretary of State of the Commonwealth of Kentucky
(the "EFFECTIVE TIME").
ARTICLE II
ARTICLES OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. THE ARTICLES OF INCORPORATION. The amended and restated articles of
incorporation of the Company as in effect immediately prior to the Effective
Time shall be the articles of incorporation of the Surviving Corporation (the
"ARTICLES"), until thereafter amended as provided therein or by applicable law,
except that Article Fourth of the Articles shall be amended to read in its
entirety as follows:
"The aggregate number of shares that the Company shall have the authority to
issue is one thousand (1,000) shares of common stock without par value."
2.2. THE BY-LAWS. The by-laws of Merger Sub in effect at the Effective Time
shall be the by-laws of the Surviving Corporation (the "BY-LAWS"), until
thereafter amended as provided therein or by applicable law.
ARTICLE III
OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
3.1. DIRECTORS. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Articles and the By-Laws; provided that the board of directors of the Surviving
Corporation shall, for the three years following the Effective Time, be
comprised of three directors, of which one shall be an individual who was either
an officer or a director of the Company immediately prior to the Effective Time.
3.2. OFFICERS. The officers of the Company at the Effective Time shall, from
and after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Articles and
the By-Laws.
3.3. SURVIVING CORPORATION CHIEF EXECUTIVE. Mr. Roger W. Hale shall, if he
is willing and able, serve as an officer and director of the Surviving
Corporation in accordance with the terms and conditions of the Employment
Agreement between Mr. Roger W. Hale and Parent or the Company attached hereto as
Exhibit A.
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ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
4.1. EFFECT ON CAPITAL STOCK. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock of
the Company:
(a) MERGER CONSIDERATION. Each share of the common stock, without par value,
of the Company (the "COMMON STOCK"), including the associated right to purchase
one one-hundredth of a share of Series A Preferred Stock, without par value, of
the Company ("SERIES A PREFERRED STOCK"), or, in certain circumstances, Common
Stock or to receive other securities (each a "RIGHT" and, together with the
Common Stock, a "SHARE" and, collectively, the "SHARES") issued pursuant to the
Rights Agreement, dated as of December 5, 1990, as amended as of May 20, 1997,
by and between the Company and Louisville Gas and Electric Company, as Rights
Agent (the "RIGHTS AGREEMENT"), issued and outstanding immediately prior to the
Effective Time (other than Shares owned by Parent, Merger Sub or any other
direct or indirect subsidiary (as defined in Section 5.1(a)) of Parent
(collectively, the "PARENT COMPANIES") or Shares that are owned by the Company
or any direct or indirect subsidiary of the Company and in each case not held on
behalf of third parties or Shares ("DISSENTING SHARES") that are owned by
shareholders ("DISSENTING SHAREHOLDERS") who are entitled to dissent from
corporate action under Section 271B.13-020 of the KBCA and who exercise that
right when and in the manner required by Sections 271B.13-020 through
271B.13-280 of the KBCA (each, an "EXCLUDED SHARE" and collectively, "EXCLUDED
SHARES")) shall be converted into the right to receive $24.85 in cash (the
"MERGER CONSIDERATION"). At the Effective Time, all Shares shall no longer be
outstanding and shall be canceled and retired and shall cease to exist, and each
certificate (a "CERTIFICATE") formerly representing any of such Shares (other
than Excluded Shares) shall thereafter represent only the right to receive the
Merger Consideration.
(b) CANCELLATION OF SHARES. Each Share issued and outstanding immediately
prior to the Effective Time and owned by any of the Parent Companies or owned by
the Company or any direct or indirect subsidiary of the Company (other than
Shares that are in each case owned on behalf of third parties), shall, by virtue
of the Merger and without any action on the part of the holder thereof, cease to
be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(c) MERGER SUB. At the Effective Time, each share of common stock of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation.
4.2. EXCHANGE OF CASH FOR SHARES.
(a) PAYING AGENT. At or prior to the Effective Time, Parent shall cause US
Subholdco 2 to deposit with a bank or trust company having a branch in New York
City selected by Parent with the Company's prior approval, which shall not be
unreasonably withheld or delayed (the "PAYING AGENT"), for the benefit of the
holders of Shares, cash sufficient to pay the aggregate Merger Consideration in
exchange for Shares outstanding immediately prior to the Effective Time (other
than Excluded Shares) upon due surrender of the Certificates (or affidavits of
loss in lieu thereof) pursuant to the provisions of this Article IV (such cash
being hereinafter referred to as the "EXCHANGE FUND"). The funds deposited with
the Paying Agent shall be invested by the Paying Agent as Parent and US
Subholdco 2 reasonably direct, PROVIDED that such investments shall be in
obligations of or guaranteed by the United States of America and backed by the
full faith and credit of the United States of America or in commercial paper
obligations rated A-1 or P-1 or better by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, respectively, and any net profit resulting from,
or interest or income
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produced by, such investments will be payable to the Surviving Corporation or US
Subholdco 2, as Parent directs.
(b) PAYMENT PROCEDURES. Promptly after the Effective Time, the Surviving
Corporation shall cause the Paying Agent to mail to each holder of record of
Shares (other than holders of Excluded Shares) (i) a letter of transmittal
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates (or affidavits
of loss in lieu thereof) to the Paying Agent, such letter of transmittal to be
in such form and have such other provisions as Parent and the Company may
reasonably agree, and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate (or affidavit of loss in lieu thereof) for cancellation to the
Paying Agent together with such letter of transmittal, duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor a check in
the amount (after giving effect to any required tax withholdings) of the number
of Shares represented by such Certificate (or affidavit of loss in lieu thereof)
multiplied by the Merger Consideration, and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on any amount payable
upon due surrender of the Certificates. In the event of a transfer of ownership
of Shares that is not registered in the transfer records of the Company, a check
for any cash to be paid upon due surrender of the Certificate may be paid to
such a transferee if the Certificate formerly representing such Shares is
presented to the Paying Agent, accompanied by all documents required to evidence
and effect such transfer and to evidence that any applicable stock transfer
taxes have been paid or are not applicable.
For the purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined in Section 5.1(d)) or
other entity of any kind or nature organized or existing under the laws of any
jurisdiction.
(c) TRANSFERS. After the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the Shares that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or Parent for transfer,
they shall be canceled and exchanged for a check in the proper amount pursuant
to this Article IV.
(d) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
(including the proceeds of any investments thereof) that remains unclaimed by
the holders of Shares (other than Excluded Shares) for 180 days after the
Effective Time shall be returned to Parent. Any holders of Shares (other than
Excluded Shares) who have not theretofore complied with this Article IV shall
thereafter look only to Parent for payment of (after giving effect to any
required tax withholdings) the Merger Consideration upon due surrender of their
Certificates (or affidavits of loss in lieu thereof) without any interest
thereon. Notwithstanding the foregoing, none of Parent, US Subholdco 2, the
Surviving Corporation, the Paying Agent or any other Person shall be liable to
any former holder of Shares for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificates to be lost, stolen or
destroyed and, if required by Parent, the posting by such Person of a bond in
customary amount as indemnity against any claim that may be made against it with
respect to such Certificates, the Paying Agent will issue in exchange for such
lost, stolen or destroyed Certificates a check in the amount (after giving
effect to any required tax withholdings) of the number of Shares represented by
such lost, stolen or destroyed Certificate multiplied by the Merger
Consideration upon due surrender of, and deliverable in respect of, the Shares
represented by such Certificates pursuant to this Agreement.
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(f) WITHHOLDING OF TAX. US Subholdco 2 shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any former holder of Shares such amounts as US Subholdco 2 (or any affiliate
thereof) is required to deduct and withhold with respect to the making of such
payment under the Code (as hereinafter defined) or any provision of state,
local, or foreign tax law, including the tax laws of the United Kingdom. To the
extent that amounts are so withheld by US Subholdco 2, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
former holder of Shares in respect of which such deduction and withholding was
made by US Subholdco 2.
4.3. DISSENTERS' RIGHTS. No Dissenting Shareholder shall be entitled to
receive any of the Merger Consideration unless and until the holder thereof
shall have failed to perfect or shall have effectively withdrawn or lost such
holder's right to dissent from the Merger under the KBCA, and any Dissenting
Shareholder shall be entitled to receive only the payment provided by Sections
271B.13-010 through 271B.13-310 of the KBCA (the "DISSENTERS' RIGHTS STATUTE")
with respect to Shares owned by such Dissenting Shareholder. If any Person who
otherwise would be deemed a Dissenting Shareholder shall have failed to properly
perfect or shall have effectively withdrawn or lost the right to dissent with
respect to any Shares, such Shares shall thereupon be treated as though such
Shares had been converted pursuant to Section 4.1(a) hereof. The Company shall
give Parent (i) prompt notice of any written demands for payment under the
Dissenters' Rights Statute, attempted withdrawals of such demands, and any other
instruments served pursuant to applicable law received by the Company relating
to shareholders' right to dissent or to receive payment under the Dissenters'
Rights Statute and (ii) the opportunity to direct all negotiations and
proceedings with respect to demand for payment under the Dissenters' Rights
Statute. The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for payment under the
Dissenters' Rights Statute with respect to Dissenting Shares, offer to settle or
settle any such demands or approve any withdrawal of any such demands.
4.4. ADJUSTMENTS TO PREVENT DILUTION. In the event that the Company changes
the number of Shares issued and outstanding prior to the Effective Time as a
result of a reclassification, stock split (including a reverse stock split),
stock dividend or distribution, recapitalization, merger, subdivision, issuer
tender or exchange offer, or other similar transaction, the Merger Consideration
shall be equitably adjusted to reflect such change.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
the corresponding sections or subsections of the disclosure letter, dated the
date hereof, delivered to Parent by the Company on or prior to entering into
this Agreement (the "COMPANY DISCLOSURE LETTER"), the Company hereby represents
and warrants to Parent and Merger Sub that:
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Company and
its subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
organization and has all requisite corporate or similar power and authority to
own and operate its properties and assets and to carry on its business as
presently conducted and is qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the ownership or operation of its
assets or properties or conduct of its business requires such qualification,
except where the failure to be so organized, qualified or in good standing, or
to have such power or authority when taken together with all other such
failures, would not have a Company Material Adverse Effect (as defined below).
The Company has made available to Parent a complete and correct copy of the
Company's and its subsidiaries' articles of incorporation and by-laws, each as
amended to date. The Company's and its subsidiaries' articles of incorporation
and by-laws as
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so made available are in full force and effect. Section 5.1(a) of the Company
Disclosure Letter contains a correct and complete list of each jurisdiction
where the Company and each of its subsidiaries is organized and qualified to do
business.
As used in this Agreement, the term (i) "SUBSIDIARY" means, with respect to
the Company, any entity, whether incorporated or unincorporated, of which at
least a majority of the securities or ownership interests having by their terms
ordinary voting power to elect a majority of the board of directors or other
persons performing similar functions is directly or indirectly owned or
controlled by the Company or by one or more of its subsidiaries or by the
Company and any one or more of its subsidiaries, and means, with respect to
Parent, any body corporate which is a subsidiary within the meaning of the
United Kingdom Companies Act 1985 (the "COMPANIES ACT"); (ii) "SUBSIDIARY"
means, with respect to Parent only, those subsidiaries or partnership interests
of the Parent identified as Parent Subsidiaries in Section 5.1(a) of the Parent
Disclosure Letter; (iii) "COMPANY MATERIAL ADVERSE EFFECT" means a material
adverse effect on the condition (financial or otherwise), properties, business,
operations or results of operations of the Company and its subsidiaries taken as
a whole, or any effect which prevents, materially delays or materially impairs
the ability of the Company to consummate the transactions contemplated by this
Agreement, other than (x) losses resulting from any increase in the Company's
reserves or other losses arising out of the contracts that were the subject of
the arbitration proceeding between Oglethorpe Power Corporation ("OPC") and the
Company for which an order was issued in December 1999 or (y) any effect from
the electric rate cases currently pending with the Kentucky Public Service
Commission (the "KPSC"), including, without limitation, the order issued by the
KPSC on January 7, 2000 (and any appeal thereof) with respect thereto (the
effects in clauses (x) and (y) being referred to together as the "EXCLUDED
EFFECTS,");(iv) "KNOWLEDGE" or any similar formulation of knowledge, including
"known by it," shall mean, with respect to Parent and its subsidiaries or the
Company and its subsidiaries, as applicable, the actual knowledge (after a
reasonable investigation) of the persons designated by Parent or the Company and
set forth in Section 5.1(a) of the Parent Disclosure Letter or Section 5.1(a) of
the Company Disclosure Letter, respectively; and (v) "JOINT VENTURE" shall mean
with respect to Parent or its subsidiaries only, those joint ventures of Parent
or any of its subsidiaries identified as a Parent Joint Venture in Section 5.1
of the Parent Disclosure Letter.
(b) CAPITAL STRUCTURE. The authorized capital stock of the Company consists
of 300,000,000 Shares, of which 129,677,030 Shares were outstanding as of the
close of business on February 25, 2000, and 5,000,000 shares of Preferred Stock,
without par value, of which no shares are outstanding. All of the outstanding
Shares have been duly authorized and are validly issued, fully paid and
nonassessable. Other than 750,000 shares of Series A Preferred Stock reserved
for issuance and shares of Common Stock subject to issuance pursuant to the
Rights Agreement, the Company has no Shares subject to issuance, except that, as
of February 25, 2000, there were 3,867,718 Shares subject to issuance pursuant
to the Company's Amended and Restated Long-Term Incentive Plan, the Company's
Stock Option Plan for Non-Employee Directors and the Company's Deferred Stock
Compensation Plan (collectively, the "STOCK PLANS"). Section 5.1(b) of the
Company Disclosure Letter contains a correct and complete list of each
outstanding option to purchase Shares under the Stock Plans (each a "COMPANY
OPTION"), including the holder, date of grant, exercise price, expiration date
and number of Shares subject thereto. Each of the outstanding shares of capital
stock or other securities of each of the Company's subsidiaries has been duly
authorized and is validly issued, fully paid and nonassessable and is owned by a
direct or indirect wholly owned subsidiary of the Company, free and clear of any
lien, pledge, security interest, claim or other encumbrance. Except as set forth
above, there are no preemptive or other outstanding rights, options, warrants,
conversion rights, stock appreciation rights, redemption rights, repurchase
rights, agreements, arrangements, calls, commitments or rights of any kind that
obligate the Company or any of its subsidiaries to issue or sell any shares of
capital stock or other securities of the Company or any of its subsidiaries or
any securities or obligations convertible or exchangeable into or exercisable
for, or giving any Person a right to subscribe for or acquire, any
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securities of the Company or any of its subsidiaries, and no securities or
obligations evidencing such rights are authorized, issued or outstanding. The
Company does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or convertible or
exchangeable into or exercisable for securities having the right to vote) with
the shareholders of the Company on any matter ("VOTING DEBT"). The Company
Disclosure Letter sets forth a true and complete list of each Person in which
the Company owns, directly or indirectly, any voting interest that may require a
filing by Parent under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR ACT").
(c) CORPORATE AUTHORITY; APPROVAL AND FAIRNESS. (i) The Company has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement and to consummate, subject only to approval of this Agreement by the
holders of a majority of the outstanding Shares (the "COMPANY REQUISITE VOTE"),
the Merger. Assuming the due authorization, execution and delivery of this
Agreement by Parent and Merger Sub, this Agreement is a valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "BANKRUPTCY AND EQUITY
EXCEPTION").
(ii) The board of directors of the Company (A) has adopted this Agreement
and the Merger and the other transactions contemplated hereby and (B) has
received the opinion of its financial advisors, The Blackstone Group LP, to the
effect that, as of the date of the Agreement, the consideration to be received
by the holders of Shares in the Merger is fair to such holders from a financial
point of view, a copy of which opinion has been delivered to Parent.
(d) GOVERNMENTAL FILINGS; NO VIOLATIONS. (i) Other than the reports,
filings, registrations, consents, approvals, permits, authorizations and/or
notices (A) pursuant to Section 1.3, (B) under the HSR Act, the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the Securities Act of
1933, as amended (the "Securities Act"), PUHCA (as defined herein) and the
Exon-Florio provisions of the Omnibus Trade and Competitiveness Act of 1988
("EXON-FLORIO"), (C) required to be made with the New York Stock Exchange, Inc.
("NYSE"), (D) to comply with state securities or "blue sky" laws, the rules and
regulations of the NYSE and the London Stock Exchange (the "LSE"), (E) with or
to the Federal Energy Regulatory Commission (the "FERC") pursuant to the Federal
Power Act, as amended (the "POWER ACT"), (F) with, to or of the public service
commission or similar regulatory body of the Commonwealths of Kentucky or
Virginia, as applicable, pursuant to applicable state laws regulating the
electric or gas utility business, or (G) identified in Section 5.1(d) of the
Company Disclosure Letter (collectively, the "COMPANY REQUIRED STATUTORY
APPROVALS"), no notices, reports or other filings are required to be made by the
Company or any of its subsidiaries with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by the Company or
any of its subsidiaries from, any governmental or regulatory authority, agency,
commission, body or other governmental entity including any stock exchange
("GOVERNMENTAL ENTITY"), in connection with the execution and delivery of this
Agreement by the Company and the consummation by the Company of the Merger and
the other transactions contemplated hereby, except those that the failure to
make or obtain would not, individually or in the aggregate, have a Company
Material Adverse Effect.
(ii) The execution, delivery and performance of this Agreement by the
Company do not, and the consummation by the Company of the Merger and the other
transactions contemplated hereby will not, constitute or result in (A) a breach
or violation of, or a default under, the Company's articles of incorporation or
by-laws or the comparable governing instruments of any of its subsidiaries or,
to the knowledge of the Company, joint ventures, (B) a breach or violation of,
or a default under, the acceleration of any obligations or the creation of a
lien, pledge, security interest, claim or other
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encumbrance on the assets of the Company or any of its subsidiaries or joint
ventures (with or without notice, lapse of time or both) pursuant to, any
agreement, lease, license, contract, note, mortgage, indenture, franchise,
permit, concession, arrangement or other obligation ("CONTRACTS") binding upon
the Company or any of its subsidiaries or joint ventures or any Law (as defined
in Section 5.1(i)) or governmental or non-governmental permit or license to
which the Company or any of its subsidiaries or joint ventures is subject or
(C) any change in the rights or obligations of any party pursuant to any of the
Contracts binding upon the Company or any of its subsidiaries or joint ventures,
except, in the case of clause (B) or (C) above, for any breach, violation,
default, acceleration, creation or change that would not, individually or in the
aggregate, have a Company Material Adverse Effect. To the knowledge of the
Company (for purposes of this Section 5.1(d)(ii) only, without any obligation to
conduct any investigation), Section 5.1(d) of the Company Disclosure Letter sets
forth a correct and complete list of material Contracts of the Company and its
subsidiaries and joint ventures pursuant to which consents or waivers (the
"COMPANY REQUIRED CONSENTS") are or may be required prior to consummation of the
transactions contemplated by this Agreement.
(e) COMPANY REPORTS; FINANCIAL STATEMENTS. All material filings, including
all material written forms, statements, reports, agreements and all material
documents, exhibits, amendments and supplements appertaining thereto, including
but not limited to all material rates, tariffs, franchises, service agreements
and related documents, required to be made by the Company and its subsidiaries
since December 31, 1997 under the Public Utility Holding Company Act of 1935, as
amended ("PUHCA"), the Power Act, the Natural Gas Act and any state law
applicable to public utilities, and under regulations applicable to public
utilities and public utility holding companies in the United States, have been
made in accordance with, and complied, as of their respective dates, in all
material respects with, the requirements of the relevant Governmental Entity.
The Company has delivered to Parent each registration statement, report, proxy
statement or information statement prepared by the Company or any of its
subsidiaries since December 31, 1998 (the "AUDIT DATE"), including (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, and
(ii) the Company's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1999, June 30, 1999 and September 30, 1999, each in the form
(including exhibits, annexes and any amendments thereto) filed with the
Securities and Exchange Commission (the "SEC") (collectively, including any such
reports filed subsequent to the date hereof and as amended, the "COMPANY
REPORTS"). As of their respective dates (or, if amended, as of the date of such
amendment), the Company Reports did not, and any Company Reports filed with the
SEC subsequent to the date hereof will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading. Each of the consolidated balance sheets
included in or incorporated by reference into the Company Reports (including the
related notes and schedules) presents fairly, or will present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of its date and each of the consolidated statements of income
and of changes in shareholders' equity and in cash flows included in or
incorporated by reference into the Company Reports (including any related notes
and schedules) presents fairly, or will present fairly, the results of
operations and cash flows, as the case may be, of the Company and its
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to the notes and normal year-end audit adjustments that
will not be material in amount or effect), in each case in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP")
consistently applied during the periods indicated, except as may be noted
therein and except, with respect to unaudited statements, as permitted by
Form 10-Q of the SEC.
(f) ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company Reports
filed prior to the date hereof, from the Audit Date through the date hereof, the
Company and its subsidiaries and joint ventures have conducted their respective
businesses only in, and have not engaged in any material transaction other than
according to, the ordinary and usual course of such businesses and there has
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not been (i) any change in the condition (financial or otherwise), properties,
business, operations or results of operations of the Company and its
subsidiaries, taken as a whole, or any development or combination of
developments of which the Company has knowledge that, individually or in the
aggregate, has had or would have a Company Material Adverse Effect; (ii) any
material damage, destruction or other casualty loss with respect to any material
asset or property owned, leased or otherwise used by the Company or any of its
subsidiaries, whether or not covered by insurance; (iii) any declaration,
setting aside or payment of any dividend, or other distribution in cash, stock
or property in respect of the capital stock of the Company, except for dividends
or other distributions on its capital stock publicly announced prior to the date
hereof and except as expressly permitted hereby; (iv) any split in the Company's
capital stock, combination, subdivision or reclassification of any of the
Company's capital stock or issuance or authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, except as expressly contemplated hereby; or (v) any change by the
Company or its subsidiaries in accounting principles, practices or methods.
Since the Audit Date, except as provided for herein or as disclosed in the
Company Reports filed prior to the date hereof, there has not been any increase
in the compensation payable by the Company or any of its subsidiaries to
officers or key employees or any amendment of any of the Compensation and
Benefit Plans (as defined in Section 5.1(h)(i)) except for increases or
amendments in the ordinary and usual course.
(g) LITIGATION AND LIABILITIES. Except as disclosed in the Company Reports
filed prior to the date hereof, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company or
any of its Affiliates (as defined below), (ii) orders, judgments, decrees,
injunctions or rules of any Governmental Entity to which the Company or any of
its subsidiaries or joint ventures is subject, (iii) to the knowledge of the
Company, obligations or liabilities, whether or not accrued, contingent or
otherwise and whether or not required to be disclosed, of the Company or any of
its Affiliates or (iv) developments since the date of such Company Reports with
respect to such disclosed actions, suits, claims, hearings, investigations or
proceedings, except, in each case, for those that would not, individually or in
the aggregate, have a Company Material Adverse Effect. As used herein, the term
"AFFILIATE" shall have the meaning ascribed to such term in Rule 12b-2 under the
Exchange Act.
(h) EMPLOYEE BENEFITS.
(i) A copy of each material bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock, stock option, employment, termination,
severance, compensation, medical, health or other plan, agreement, policy or
arrangement that covers current or former employees or current or former
directors of the Company and its subsidiaries (the "COMPENSATION AND BENEFIT
PLANS") and any trust agreement or insurance contract forming a part of any such
Compensation and Benefit Plans has been made available to Parent prior to the
date hereof. The Compensation and Benefit Plans are listed in Section 5.1(h) of
the Company Disclosure Letter and any "change of control" or similar provisions
therein are specifically identified in Section 5.1(h) of the Company Disclosure
Letter.
(ii) Except as would not, individually or in the aggregate, have a Company
Material Adverse Effect, (A) each Compensation and Benefit Plan is in
substantial compliance with all applicable law, including the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
(the "CODE") and the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and (B) neither the Company nor any of its subsidiaries has engaged in
a transaction with respect to any Compensation and Benefit Plan that, assuming
the taxable period of such transaction expired as of the date hereof, would
subject the Company or any of its subsidiaries to a tax or penalty imposed by
either Section 4975 of the Code or Section 502 of ERISA. Each Compensation and
Benefit Plan that is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA (a "PENSION PLAN") and that is intended to be qualified
under Section 401(a) of the Code has received a
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favorable determination letter from the Internal Revenue Service (the "IRS"),
and the Company is not aware of any circumstances likely to result in revocation
of any such favorable determination letter. There is no material pending, or, to
the knowledge of the Company, threatened litigation relating to the Compensation
and Benefit Plans.
(iii) Except as would not, individually or in the aggregate, have a Company
Material Adverse Effect, (A) no liability under Subtitle C or D of Title IV of
ERISA has been or is reasonably expected to be incurred by the Company or any of
its subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them, or the single-employer plan of
any entity which is considered one employer with the Company under Section 4001
of ERISA or Section 414 of the Code (an "ERISA AFFILIATE") and (B) the Company
and its subsidiaries have not incurred in the last five years and do not
reasonably expect to incur any withdrawal liability with respect to a
multiemployer plan under Subtitle E to Title IV of ERISA regardless of whether
based on contributions of an ERISA Affiliate. To the knowledge of the Company,
no notice of a "reportable event," within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any Pension Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof or will be required to be filed in
connection with the transactions contemplated by this Agreement.
(iv) Neither any Pension Plan nor any single-employer plan of an ERISA
Affiliate has an "accumulated funding deficiency" (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA.
(v) Except as would not, individually or in the aggregate, have a Company
Material Adverse Effect, under each Pension Plan which is a single-employer
plan, as of the last day of the most recent plan year ended prior to the date
hereof, the actuarially determined present value of all "benefit liabilities,"
within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis
of the actuarial assumptions contained in the Pension Plan's most recent
actuarial valuation), did not exceed the then current value of the assets of
such Pension Plan, and there has been no material change in the financial
condition of such Pension Plan since the last day of the most recent plan year.
(vi) Neither the Company nor its subsidiaries have any obligations for
retiree health and life benefits under any Compensation and Benefit Plan. The
Company or its subsidiaries may amend or terminate any such plan under the terms
of such plan at any time without incurring any liability thereunder except as
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
(vii) The consummation of the Merger and the other transactions contemplated
by this Agreement will not (x) entitle any employees of the Company or its
subsidiaries to severance pay or (y) accelerate the time of payment or vesting
or trigger any payment or funding (through a grantor trust or otherwise) of
compensation or benefits under, increase the amount payable or trigger any other
material obligation pursuant to, any of the Compensation and Benefit Plans.
(viii) Except as would not, individually or in the aggregate, be reasonably
likely to have a Company Material Adverse Effect, (A) all Compensation and
Benefit Plans covering current or former non-U.S. employees or former employees
of the Company and its subsidiaries comply with applicable local law and
(B) the Company and its subsidiaries have no unfunded liabilities with respect
to any Pension Plan that covers such non-U.S. employees in any foreign
jurisdiction where funding of such plan is required by applicable law.
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(i) COMPLIANCE WITH LAWS; GOVERNMENT INVESTIGATIONS; PERMITS. Except as set
forth in the Company Reports filed prior to the date hereof, the businesses of
each of the Company and its subsidiaries and, to the knowledge of the Company,
of each of its joint ventures have not been, and are not being, conducted in
violation of, default under or non-compliance with any federal, state, local or
foreign law, statute, ordinance, rule, regulation, judgment, order, injunction,
decree, arbitration award, agency requirement, writ, franchise, variance,
exemption, approval, license or permit of any Governmental Entity (each, a "LAW"
and collectively, "LAWS"), except for violations, defaults or non-compliance
that would not, individually or in the aggregate, have a Company Material
Adverse Effect. Except as set forth in the Company Reports filed prior to the
date hereof, no investigation or review by any Governmental Entity with respect
to the Company or any of its subsidiaries or joint ventures is pending or, to
the knowledge of the Company, threatened, nor has any Governmental Entity
indicated an intention to conduct the same, except for those the outcome of
which would not, individually or in the aggregate, have a Company Material
Adverse Effect. Except as set forth in the Company Reports filed prior to the
date hereof, to the knowledge of the Company, (i) no material change is required
in the Company's or any of its subsidiaries' or joint ventures' processes,
properties or procedures in connection with any Laws in effect on the date
hereof or enacted as of the date hereof and scheduled to be effective after the
date hereof, and (ii) the Company has not received any notice or communication
of any material noncompliance with any Laws that has not been cured as of the
date hereof, except in the case of clauses (i) and (ii), for those changes or
failures to cure, that individually or in the aggregate, would not have a
Company Material Adverse Effect. Each of the Company and its subsidiaries and
joint ventures has all permits, licenses, franchises, variances, exemptions,
orders and other governmental authorizations, consents and approvals necessary
to conduct its business as presently conducted, except for those the absence of
which would not, individually or in the aggregate, have a Company Material
Adverse Effect.
(j) TAKEOVER STATUTES. Assuming the representation of Parent in
Section 5.2(f) is true and correct, no "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation in the
United States or any jurisdiction within the United States (each a "TAKEOVER
STATUTE") or any anti-takeover provision in the Company's articles of
incorporation or by-laws is, or at the Effective Time will be, applicable to the
Shares, the Merger or the other transactions contemplated by this Agreement.
(k) ENVIRONMENTAL MATTERS. Except as disclosed in the Company Reports filed
prior to the date hereof and except as in each case would not, individually or
in the aggregate, have a Company Material Adverse Effect: (i) the Company and
its subsidiaries and, to the knowledge of the Company, joint ventures have
complied at all times with all applicable Environmental Laws (as defined below);
(ii) to the knowledge of the Company, no property currently owned or operated by
the Company or any of its subsidiaries or joint ventures (including soils,
groundwater, surface water, buildings or other structures) is contaminated with
any Hazardous Substance (as defined below) which could reasonably be expected to
result in liability relating to or require any remediation under any
Environmental Law; (iii) to the knowledge of the Company, no property formerly
owned or operated by the Company or any of its subsidiaries or joint ventures
has been contaminated with any Hazardous Substance during or prior to such
period of ownership or operation which could reasonably be expected to result in
liability relating to or require any remediation under any Environmental Law;
(iv) to the knowledge of the Company, neither the Company nor any of its
subsidiaries or joint ventures is subject to liability for any Hazardous
Substance disposal or contamination of any third party property; (v) to the
knowledge of the Company, neither the Company nor any of its subsidiaries or
joint ventures has been associated with any release or threat of release of any
Hazardous Substance which could reasonably be expected to result in liability
relating to or require any remediation under any Environmental Law;
(vi) neither the Company nor any of its subsidiaries or, to the knowledge of the
Company, joint ventures has received any notice, demand, letter, claim or
request for information alleging that the Company or any of its subsidiaries may
be in violation of or subject to liability under any Environmental Law;
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(vii) neither the Company nor any of its subsidiaries or, to the knowledge of
the Company, joint ventures is subject to any order, decree, injunction or other
similar legally binding arrangement with any Governmental Entity or any
indemnification or other similar legally binding agreement with any third party
relating to liability or obligation in connection with any Environmental Law or
relating to Hazardous Substances; (viii) to the knowledge of the Company, there
are no other circumstances or conditions involving the Company or any of its
subsidiaries or joint ventures or the transactions contemplated in this
Agreement that could reasonably be expected to result in any claim, liability,
investigation, cost or restriction on the ownership, use, or transfer of any
property pursuant to any Environmental Law; (ix) to the knowledge of the
Company, the Company has delivered or made available to Parent copies of all
material environmental reports, studies, assessments, sampling data and other
environmental information in its possession relating to the Company or its
subsidiaries or joint ventures or their respective current and former properties
or operations; and (x) the Company has disclosed to Parent all material facts
known by it relating to (A) the cost of pollution control measures by the
Company or any of its subsidiaries or joint ventures which is required or may be
required in the future, (B) remediation costs of the Company or any of its
subsidiaries or joint ventures which are being incurred or may be incurred in
the future, or (C) any other environmental matter that could reasonably be
expected to result in liability, costs or obligations, including modification of
or changes to any generating equipment, affecting the Company or any of its
subsidiaries or joint ventures in connection with any Environmental Law.
As used herein, the term "ENVIRONMENTAL LAW" means any applicable federal,
state, local or foreign statute, law, regulation, order, decree, permit,
authorization, common law or legally binding agency requirement relating to:
(A) the protection, investigation or restoration of the environment, health and
safety as it relates to Hazardous Substances, or natural resources, (B) the
handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (C) noise, odor, indoor air, employee exposure, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property in each case relating to any Hazardous Substance.
As used herein, the term "HAZARDOUS SUBSTANCE" means any substance that is:
(A) listed, classified or regulated pursuant to any Environmental Law; (B) any
petroleum or coal product or by-product, any waste or ash or sludge,
asbestos-containing material, lead-containing paint or plumbing, polychlorinated
biphenyls, radioactive material or radon; and (C) any other substance which
could reasonably be expected to be the subject of regulatory action by any
Governmental Entity in connection with any Environmental Law.
(l) TAXES. Except as would not, individually or in the aggregate, have a
Company Material Adverse Effect, the Company and each of its subsidiaries
(i) have timely filed (taking into account any extension of time within which to
file) all Tax Returns (as defined below) required to be filed by any of them and
all such filed Tax Returns are complete and accurate in all material respects;
and (ii) have paid, or, where payment is not yet due, have established an
adequate accrual for the payment of, all Taxes (as defined below) that are shown
as due on the Tax Returns referred to in Section 5.1(l)(i) above. As of the date
hereof, except as would not, individually or in the aggregate, have a Company
Material Adverse Effect, there are not pending or, to the knowledge of the
Company, threatened in writing, any audits, examinations, investigations or
other proceedings in respect of Taxes or Tax matters. The federal income Tax
Returns of the Company and each of its subsidiaries have been examined and
settled with the IRS (or the applicable statutes of limitation for the
assessment of federal income taxes for such periods have expired) for all years
through December 31, 1995. There are no material liens or encumbrances for Taxes
on any of the assets of the Company or any of its subsidiaries, except for
(i) statutory liens for Taxes not yet due or payable, (ii) liens for Taxes that
are being contested in good faith and are listed in Section 5.1(1) of the
Company Disclosure Letter and (iii) any other liens for Taxes that would not,
individually or in the aggregate, have a Company Material Adverse Effect. Any
tax sharing agreements between the Company or any of its subsidiaries
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and any Person other than the Company or any of its subsidiaries will be
terminated as of the Effective Time. The Company has made available to Parent
true and correct copies of the United States federal income Tax Returns and
state corporate or franchise Tax Returns filed by the Company and its
subsidiaries, and any examination reports and statements of deficiencies
assessed against and agreed to by the Company or any of its subsidiaries, for
each of the fiscal years ended December 31, 1995, 1996, 1997 and 1998.
Except as would not, individually or in the aggregate, have a Company
Material Adverse Effect, neither the Company nor any of its subsidiaries has
(i) filed a consent under Section341(f) of the Code concerning collapsible
corporations; (ii) been a member of an affiliated group filing a consolidated
United States federal income Tax Return (other than a group the common parent of
which was the Company); or (iii) any liability for the Taxes of any Person
(other than any of the Company and its subsidiaries under Treasury Regulations
Section1.1502-6 (or similar provision of state, local, or foreign law)) as a
transferee or successor, by contract, or otherwise.
As used in this Agreement, (i) the term "TAX" (including, with correlative
meaning, the terms "TAXES" and "TAXABLE") includes all federal, state, local and
foreign income, profits, franchise, gross receipts, environmental, customs duty,
capital stock, severance, stamp, payroll, sales, employment, unemployment,
disability, use, property, withholding, excise, production, value added,
occupancy and other taxes, duties or assessments of any nature whatsoever,
together with all interest, penalties and additions imposed with respect to such
amounts and any interest in respect of such penalties and additions, and
(ii) the term "TAX RETURNS" includes all returns and reports (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be supplied to a Tax authority relating to Taxes.
(m) LABOR MATTERS.
(i) Except as disclosed in the Company Reports filed prior to the date
hereof or as set forth in Section 5.1(m) of the Company Disclosure Letter,
neither the Company nor any of its subsidiaries is a party to or otherwise bound
by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is the Company or
any of its subsidiaries or joint ventures the subject of nor, to the knowledge
of the Company, threatened with, any material proceeding asserting that the
Company or any of its subsidiaries or joint ventures has committed an unfair
labor practice or is seeking to compel the Company or any of its subsidiaries to
bargain with any labor union or labor organization, nor is there pending or, to
the knowledge of the Company, threatened, nor has there been for the past five
years, any labor strike, dispute, walk-out, work stoppage, slow-down or lockout
involving the Company or any of its subsidiaries or joint ventures, nor, to the
knowledge of the Company, are there any material organizational efforts
presently being made involving any of the now unorganized employees of the
Company or any of its subsidiaries or joint ventures. The Company has previously
made available to Parent correct and complete copies of all labor and collective
bargaining agreements, Contracts or other agreements or understandings with a
labor union or labor organization to which the Company or any of its
subsidiaries is party or by which any of them are otherwise bound (collectively,
the "COMPANY LABOR AGREEMENTS"). The consummation of the Merger and the other
transactions contemplated by this Agreement will not entitle any third party
(including any labor union or labor organization) to any payments under any of
the Company Labor Agreements.
(ii) To the knowledge of the Company, neither the Company nor any of its
subsidiaries or joint ventures is in material violation of any labor laws in any
country (or political subdivision thereof) in which they transact business
except for such violations as would not, individually or in the aggregate, have
a Company Material Adverse Effect.
(n) INTELLECTUAL PROPERTY.
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(i) Except as disclosed in the Company Reports filed prior to the date
hereof, the Company or its subsidiaries own (free and clear of any and all
liens, pledges, security interests or other encumbrances), or are licensed or
otherwise possess sufficient rights to use, all patents, trademarks, trade
names, service marks, brand names, copyrights, and any applications therefor,
technology, know-how, computer software programs or applications, databases,
industrial designs and tangible or intangible proprietary information or
materials that are currently used in its and its subsidiaries' businesses
(collectively, "INTELLECTUAL PROPERTY RIGHTS"), except for any such failures to
own, be licensed or possess that would not, individually or in the aggregate,
have a Company Material Adverse Effect.
(ii) Except as disclosed in the Company Reports filed prior to the date
hereof, and except for such matters that would not, individually or in the
aggregate, have a Company Material Adverse Effect, (i) to the knowledge of the
Company, the use of the Intellectual Property Rights by the Company or its
subsidiaries does not infringe upon, violate or constitute a misappropriation of
any intellectual property right, patent, trademark, trade name, service mark,
brand name, copyright, technology, know-how, computer software program or
application, database or industrial design of any other Person and (ii) there
have been no written claims made and neither the Company nor any of its
subsidiaries has received written notice of any claim or otherwise knows that
any Intellectual Property Right is invalid, conflicts with the asserted right of
any other Person, or has not been used or enforced or has failed to be used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of such Intellectual Property Right of the Company or any of
its subsidiaries.
(o) INSURANCE. All material insurance policies maintained by the Company or
any of its subsidiaries are with reputable insurance carriers (other than
existing self-insurance), provide coverage for those risks incident to the
business of the Company and its subsidiaries and their respective properties and
assets as is customary for companies conducting the business conducted by the
Company during such time period, are in character and amount at least equivalent
to that carried by Persons engaged in similar businesses and subject to the same
or similar perils or hazards, and are sufficient for compliance with all Laws
currently applicable to the Company or any of its subsidiaries except for any
failures either to have insurance or to maintain insurance policies that would
not, individually or in the aggregate, have a Company Material Adverse Effect.
Neither the Company nor any of its subsidiaries has received any notice of
cancellation or termination with respect to any material insurance policy of the
Company or any of its subsidiaries. The insurance policies of the Company and
each of its subsidiaries are valid and enforceable policies in all respects.
(p) RIGHTS AGREEMENT. (i) The Company has taken all necessary action to
provide that (x) none of Parent, Merger Sub or any of their respective
Associates or Affiliates (each as defined in the Rights Agreement) shall be
deemed an Acquiring Person (as defined in the Rights Agreement), (y) none of the
Distribution Date, a Stock Acquisition Date or a Triggering Event (each as
defined in the Rights Agreement) shall be deemed to have occurred as a result of
entering into this Agreement or consummating the Merger and/or the other
transactions contemplated hereby and (z) the Rights will not separate from the
Shares or become exercisable, in each case solely as a result of entering into
this Agreement or consummating the Merger and/or the other transactions
contemplated hereby.
(ii) The Company has taken all necessary action with respect to all of the
outstanding Rights (as defined in the Rights Agreement) so that, immediately
prior to the Effective Time (A) none of the Company, Parent or Merger Sub will
have any obligations under the Rights or the Rights Agreement and (B) the
holders of the Rights will have no rights under the Rights or the Rights
Agreement.
(q) BROKERS AND FINDERS. Neither the Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the Merger or the other transactions contemplated in this Agreement
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except that the Company has employed The Blackstone Group LLC as its financial
advisors, the arrangements with which have been disclosed to Parent prior to the
date hereof.
(r) YEAR 2000. Except as disclosed in the Company Reports filed prior to
the date hereof, all computer systems and computer software used by the Company
or any of its subsidiaries, and, to the knowledge of the Company, the computer
systems and computer software used by the Company's commercial counterparties
that are material to the provision of any material products or services to the
Company or any of its subsidiaries, recognize the advent of the year A.D. 2000
and can correctly recognize and manipulate date information relating to dates on
or after January 1, 2000 and the operation and functionality of such computer
systems and software has not been adversely affected by the advent of the year
A.D. 2000 or any manipulation of data featuring information relating to dates
before, on or after January 1, 2000 ("MILLENNIUM FUNCTIONALITY"), except in each
case for such computer systems and computer software, the failure of which to
achieve Millennium Functionality, individually or in the aggregate, has not had
and would not have a Company Material Adverse Effect. Except as disclosed in the
Company Reports filed prior to the date hereof, the costs of the adaptations
necessary to achieve Millennium Functionality have not had and would not have a
Company Material Adverse Effect.
(s) REGULATORY PROCEEDINGS. Except as set forth in the Company Reports
filed prior to the date hereof, neither the Company nor any of its subsidiaries,
all or part of whose rates or services are regulated by a Governmental Entity,
has rates which have been or are being collected subject to refund, pending
final resolution of any proceeding pending before a Governmental Entity or on
appeal to the courts, which, individually or in the aggregate, have had or would
result in a Company Material Adverse Effect.
(t) REGULATION AS A UTILITY. (i) Louisville Gas and Electric Company is not
regulated as a public utility by any state other than the Commonwealth of
Kentucky. Kentucky Utilities Company is not regulated as a public utility by any
state other than the Commonwealth of Kentucky and the Commonwealth of Virginia
and may be subject to regulation as a public utility in the State of Tennessee.
Other than as set forth in the two preceding sentences, no "subsidiary company"
or "affiliate" of the Company (such terms having the meaning ascribed to such
terms in the PUHCA) is subject to regulation as a public utility or public
service company (or similar designation) by the FERC, any state in the United
States or in any foreign country.
(ii) The Company is an exempt public utility holding company under
Section 3(a)(1) of the PUHCA.
(u) OWNERSHIP OF SHARES. Neither the Company nor any of its subsidiaries
"Beneficially Owns" (as such term is defined in Rule 13d-3 under the Exchange
Act) any ordinary shares, nominal value 50p each, of Parent ("PARENT ORDINARY
SHARES"), or ADS's (as defined in Section 6.11(a)).
(v) COMPLIANCE WITH AGREEMENTS. Except as disclosed in the Company Reports
filed prior to the date hereof, neither the Company nor any of its subsidiaries
or, to the knowledge of the Company, joint ventures nor, in the case of
clause (B) below, to the knowledge of the Company, any other Person, is in
breach or violation of, or in default in the performance or observance of, any
term or provision of, and, to the knowledge of the Company, no event has
occurred which, with notice or lapse of time or both, is reasonably likely to
result in a default under (A) the articles of incorporation or by-laws of the
Company, Louisville Gas and Electric Company, Kentucky Utilities Company, or
LG&E Capital Corp., or (B) any Contract by which the Company or any of its
subsidiaries or joint ventures is bound, except, in the case of clause (B), for
such breaches, violations and defaults which, individually or in the aggregate,
have not had and would not have a Company Material Adverse Effect. Except as
disclosed in the Company Reports filed prior to the date hereof, neither any of
the subsidiaries nor, to the knowledge of the Company, any of the joint ventures
is in material default under their respective governing documents.
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(w) JOINT VENTURES. Section 5.1(w) of the Company Disclosure Letter sets
forth a list of each of the Company's joint ventures, including for each such
entity its name and the Company's interest therein, and also including for each
joint venture a brief description of its principal line or lines of business.
With respect to each of the Company's joint ventures, the Company has disclosed
to Parent correct and complete copies (or descriptions of oral agreements, if
any) of all agreements to which the Company or any of its subsidiaries or joint
ventures is a party which (i) contain any change of control provisions, put
options or call options related to the interests in the joint venture, rights of
first refusal or other similar provisions or any provisions that are reasonably
likely to affect the ability of Parent, together with the remaining co-owners of
each such entity, to direct and control such entity's business operations as a
result of the consummation of the Merger or (ii) evidence any commitment
(whether or not contingent) for future investment of capital or otherwise to be
directly or indirectly made by Parent, the Company or any of their respective
subsidiaries therein. With respect to joint ventures for which the Company has
not disclosed to Parent all agreements pursuant to the immediately preceding
sentence (the "UNDISCLOSED COMPANY JOINT VENTURES"), the Company represents and
warrants to Parent that (i) none of the agreements relating to the Undisclosed
Company Joint Ventures contain any change of control provisions, put options or
call options related to the interests in the Undisclosed Company Joint Ventures,
rights of first refusal or other similar provisions that are triggered by the
execution and delivery of the Merger Agreement by the Company or would be
triggered by the consummation of the Merger in accordance with its terms, and
(ii) neither the Company nor any of its subsidiaries is obligated to make any
loans or capital contributions to, or to undertake any guarantees with respect
to, any Undisclosed Company Joint Venture.
As used in this Agreement, "JOINT VENTURE" shall mean any corporation or
other Person that is not a subsidiary of such Person, in which such Person owns
directly or indirectly an equity, voting or other membership interest, other
than equity, voting or other membership interests representing less than 5% of
each class of the outstanding voting securities or equity or other voting or
membership interests of any such Person and owned for passive investment
purposes.
(x) DERIVATIVE PRODUCTS. Any Derivative Products (as defined below) entered
into for the account of the Company or any of its subsidiaries were entered into
in accordance with the Trading Policies (as defined in Section 6.18) and
applicable rules, regulations and policies of any Governmental Entity and are
legal, valid and binding obligations of the Company or one of its subsidiaries
enforceable in accordance with their terms, subject to the Bankruptcy and Equity
Exception, and are in full force and effect. The Company and each of its
subsidiaries have duly performed in all respects all of their obligations
thereunder to the extent that such obligations to perform have accrued, and, to
the knowledge of the Company, there are no breaches, violations or defaults or
allegations or assertions of such by any party thereunder, except for any
failure to perform obligations or breaches or defaults that would not cause a
Company Material Adverse Effect.
The Company has provided Parent with a true and accurate copy of the Trading
Policies and, to the knowledge of the Company, all material information
regarding the current practice of the Company and its subsidiaries with respect
to Derivative Products delivered to representatives of Parent on January 10,
2000, is accurate and complete in all material respects.
As used herein, "DERIVATIVE PRODUCT" means (i) any swap, cap, floor, collar,
futures contract, forward contract, option and any other derivative financial
instrument, contract or arrangement, based on any commodity, security,
instrument, asset, rate or index of any kind or nature whatsoever, whether
tangible or intangible, including but not limited to electricity, natural gas,
crude oil and other commodities, currencies, interest rates and indices and
(ii) forward contracts for physical delivery, physical output of assets, and
physical load obligations.
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(y) OPC AND ELECTRIC RATE CASE INFORMATION. Prior to the date hereof, the
Company has delivered to Parent all information, including agreements,
documents, analyses, reports, memoranda and filings, related to Excluded Effects
known to the Company and reasonably necessary to understand the financial
consequences of such matters, and such information collectively does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the information contained
therein not misleading.
5.2. REPRESENTATIONS AND WARRANTIES OF PARENT. Except as set forth in the
corresponding sections or subsections of the disclosure letter, dated the date
hereof, delivered to the Company by Parent on or prior to entering into this
Agreement (the "PARENT DISCLOSURE LETTER"), Parent hereby represents and
warrants to the Company that:
(a) CAPITALIZATION OF MERGER SUB AND US SUBHOLDCO 2. The authorized
capital stock of each of Merger Sub and US Subholdco 2 at the Effective Time
will consist only of shares of common stock, without par value, all of which
shall be validly issued, fully paid and outstanding. At the Effective Time, all
of the issued and outstanding capital stock of each of Merger Sub and US
Subholdco 2 will be owned indirectly by Parent, and there will be: (i) no other
shares of capital stock or voting securities of Merger Sub or US Subholdco 2,
(ii) no securities of Merger Sub or US Subholdco 2 convertible into or
exchangeable for shares of capital stock or voting securities of Merger Sub or
US Subholdco 2, respectively, and (iii) no options or other rights to acquire
from Merger Sub or US Subholdco 2, and no obligations of Merger Sub or US
Subholdco 2 to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
Merger Sub or US Subholdco 2, respectively. Prior to the Effective Time, Merger
Sub and US Subholdco 2 will not have conducted any business and will have no
assets, liabilities or obligations of any nature other than those incident to
its formation and pursuant to this Agreement, the Merger, the financing
arrangements therefor and the other transactions contemplated by this Agreement.
(b) ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of Parent and its
subsidiaries is a corporation duly incorporated or organized, validly existing
and in good standing (with respect to jurisdictions that recognize the concept
of good standing) under the laws of its respective jurisdiction of incorporation
or organization and has all requisite corporate or similar power and authority
to own and operate its assets or properties and to carry on its business as
presently conducted and is qualified to do business and is in good standing
(with respect to jurisdictions that recognize the concept of good standing) as a
foreign corporation in each jurisdiction where the ownership or operation of its
properties or conduct of its business requires such qualification, except where
the failure to be so incorporated or organized, qualified or in such good
standing, or to have such power or authority when taken together with all other
such failures, would not have a Parent Material Adverse Effect (as defined
below). Parent has made available to the Company a complete and correct copy of
the Parent's memorandum and articles of association, each as currently in full
force and effect.
As used in this Agreement, the term "PARENT MATERIAL ADVERSE EFFECT" means a
material adverse effect on the condition (financial or otherwise), properties,
business, operations or results of operations of the Parent and its subsidiaries
taken as a whole or any effect which prevents, materially delays or materially
impairs the ability of Parent or Merger Sub to consummate the transactions
contemplated by this Agreement.
(c) CORPORATE AUTHORITY. Parent has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement and to consummate the
Merger subject only to the approval of (i) the Merger, and (ii) any increase in
Parent's borrowing powers as set out in its articles of association required in
connection with the Merger or the Financing Plan (as defined in
Section 5.2(h)), in each case by the holders of a majority of the outstanding
Parent Ordinary Shares who vote at a duly convened meeting of the
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shareholders of Parent (the "PARENT REQUISITE VOTE"). Assuming the due
authorization, execution and delivery of this Agreement by the Company, this
Agreement is a valid and binding agreement of Parent, and will be a valid and
binding agreement of Merger Sub, enforceable against each of Parent and Merger
Sub in accordance with its terms, subject to the Bankruptcy and Equity
Exception. As of the Effective Time, Merger Sub will have all requisite
corporate power and authority and will have taken all corporate action necessary
in order to execute, deliver and perform its obligations under this Agreement
and to consummate the Merger.
(d) GOVERNMENTAL FILINGS; NO VIOLATIONS. (i) Other than the reports,
filings, registrations, consents, approvals, permits, authorizations and/or
notices (A) pursuant to Section 1.3, (B) under the HSR Act, the Securities Act,
the Exchange Act and Exon-Florio, (C) to comply with the rules and regulations
of the LSE, (D) required to be made with the NYSE, (E) with or to the SEC
pursuant to PUHCA or the FERC pursuant to the Power Act, (F) pursuant to the
United Kingdom's Electricity Act 1989 and the Fair Trading Act 1973, (G) in
connection with the Parent Requisite Vote, or (H) identified in Section 5.2(d)
of the Parent Disclosure Letter (collectively, the "PARENT REQUIRED STATUTORY
APPROVALS"), no notices, reports or other filings are required to be made by
Parent or Merger Sub with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by Parent or Merger Sub from,
any Governmental Entity, in connection with the execution and delivery of this
Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub
of the Merger and the other transactions contemplated hereby, except those that
the failure to make or obtain would not, individually or in the aggregate, have
a Parent Material Adverse Effect.
(ii) The execution, delivery and performance of this Agreement by Parent
does not (and by Merger Sub will not), and the consummation by Parent and Merger
Sub of the Merger and the other transactions contemplated hereby will not,
constitute or result in (A) a breach or violation of, or a default under, the
articles of incorporation or by-laws of Merger Sub or, subject to the Parent
Requisite Vote, the articles of association and memorandum of association of
Parent or the comparable governing instruments of any of its subsidiaries or, to
Parent's knowledge, joint ventures, (B) a breach or violation of, or a default
under, the acceleration of any obligations or the creation of a lien, pledge,
security interest, claim or other encumbrance on the assets of Parent or any of
its Subsidiaries or Joint Ventures (with or without notice, lapse of time or
both) pursuant to any Contracts binding upon Parent or any of its Subsidiaries
or Joint Ventures or any Law or governmental or non-governmental permit or
license to which Parent or any of its Subsidiaries or Joint Ventures is subject
or (C) any change in the rights or obligations of any party under any of the
Contracts, except, in the case of clause (B) or (C) above, for any breach,
violation, default, acceleration, creation or change that would not,
individually or in the aggregate, have a Parent Material Adverse Effect. To the
knowledge of Parent (for purposes of this Section 5.2(d)(ii) only, without any
obligation to conduct any investigation), Section 5.2(d) of the Parent
Disclosure Letter sets forth a correct and complete list of material Contracts
of Parent and its subsidiaries and joint ventures pursuant to which consents or
waivers (the "PARENT REQUIRED CONSENTS") are or may be required prior to
consummation of the transactions contemplated by this Agreement.
(e) PARENT REPORTS. All material filings, including all material written
forms, statements, reports, agreements and all material documents, exhibits,
amendments and supplements appertaining thereto, including but not limited to
all material rates, tariffs, franchises, service agreements and related
documents, required to be made by Parent and its Subsidiaries since
December 31, 1997, under laws and regulations applicable to the electricity
industry in the United Kingdom (including those under the Electricity Act 1989),
have been made in accordance with, and complied, as of their respective dates,
in all material respects with, the requirements of the relevant Governmental
Entity. Parent has delivered to the Company copies of (i) each registration
statement, report or annual report prepared by it since January 3, 1999 (the
"PARENT AUDIT DATE"), including the Parent Annual Report
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on Form 20-F for the year ended January 3, 1999, and the interim report of
Parent for the six month period ended July 4, 1999 (collectively, including any
such registration statement, report or annual report filed subsequent to the
date hereof, the "PARENT REPORTS"), each in the form (including exhibits,
annexes and any amendments thereto) filed with the SEC, and (ii) all circulars,
reports and other documents distributed by Parent to its shareholders since
January 3, 1999. As of their respective dates (or, if amended, as of the date of
such amendment), the Parent Reports did not, and any Parent Report filed with
the SEC subsequent to the date hereof will not, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading in any material respect. The audited
consolidated financial statements of Parent and its Subsidiaries included in or
incorporated by reference into the Parent Reports (including the related notes
and schedules) were prepared in accordance with accounting principles generally
accepted in the United Kingdom ("U.K. GAAP") applied on a consistent basis
(except as may be indicated in the notes thereto) and present fairly, or will
present fairly, in all material respects, the consolidated financial position of
Parent and its subsidiaries and the results of their operations and cash flows
as of the date thereof and for the period then ended, in conformity with U.K.
GAAP.
(f) TAKEOVER STATUTES. Assuming the representation of the Company in
Section 5.1(j) is true and correct, no anti-takeover statute or regulation in
the United Kingdom or any anti-takeover provision in the Parent's articles of
association or memorandum of association is, or at the Effective Time will be,
applicable to the Merger or the other transactions contemplated by this
Agreement.
(g) OWNERSHIP OF SHARES. Neither Parent nor any of its subsidiaries is the
"Beneficial Owner" of or "beneficially owns" (as each such term is defined under
the Rights Agreement) any Shares.
(h) FUNDS FOR THE MERGER CONSIDERATION. As of the date hereof, Parent has
provided to the Company a copy of its plan for financing the Merger
Consideration (the "FINANCING PLAN") and, at the Effective Time, will have
available all of the funds necessary for the payment of the Merger
Consideration, and to perform its and the Surviving Corporation's obligations
under this Agreement.
(i) SHARE CAPITAL. As of the date hereof, the authorized share capital of
Parent consists of 1,050,000,000 Parent Ordinary Shares, of which 650,092,031
were issued and outstanding as of the close of business on February 25, 2000,
and one Special Rights Redeemable Preference Share, nominal value L1 per share,
which was issued and outstanding as of the close of business on the date hereof.
All of the issued and outstanding Parent Ordinary Shares have been duly
authorized and validly issued and are fully paid or credited as fully paid. As
of the date hereof, Parent has no Parent Ordinary Shares subject to issuance,
except that there are not more than 8,783,038 Parent Ordinary Shares subject to
issuance pursuant to options or rights outstanding. Except as set forth above,
and except as may be required by law, as of the date hereof, there are no
preemptive or other material outstanding rights, options, warrants, conversion
rights, stock appreciation rights, redemption rights, repurchase rights,
agreements, arrangements or commitments which obligate Parent or any of its
subsidiaries to issue or to sell any share capital or other securities of Parent
or any of its subsidiaries or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to subscribe
for or acquire from Parent or any of its subsidiaries, any material securities
of Parent or any of its subsidiaries, and no securities or obligations
evidencing such rights are authorized, issued or outstanding.
(j) LITIGATION. As of the date hereof, there is no action, suit, claim,
arbitration, grievance, complaint, charge, proceeding, or investigation pending
or, to Parent's knowledge, threatened to be brought, by or before any
Governmental Entity, against Parent or any of its Affiliates that would
reasonably be expected to materially and adversely affect the ability of Parent
or Merger Sub to fulfill its obligations hereunder.
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(k) REGULATION AS A UTILITY. As of the date hereof, neither Parent nor any
"subsidiary company" or "affiliate" (as each such term is defined in PUHCA) of
Parent is an exempt wholesale generator under PUHCA or is subject to regulation
as a public utility holding company, public utility or public service company
(or similar designation) or as a subsidiary or affiliate of a public utility
holding company, public utility or public service company (or similar
designation) by the federal government of the United States or any state in the
United States.
(l) OPC AND ELECTRIC RATE CASE DISCLOSURE. As of the date hereof and prior
to the execution of this Agreement, Parent has, assuming the accuracy of the
Company's representation in Section 5.1(y), received sufficient information, and
has had the opportunity to make such inquiries and to conduct such
investigation, as it has deemed necessary to make an independent assessment of
the liability exposure of the Company and its subsidiaries with respect to the
Excluded Effects.
ARTICLE VI
COVENANTS
6.1. TRANSITION GROUP; 2001 BUDGET. (a) Promptly after the date hereof,
Parent and the Company shall establish a transition committee (the "TRANSITION
COMMITTEE") consisting of the Chief Executive Officers of Parent and the Company
(who shall be Co-Chairmen of such committee) and such other persons as the Chief
Executive Officers shall designate to, subject to applicable Laws relating to
the exchange of information, facilitate a full exchange of information
concerning the business, operations, capital spending, budgets and financial
results of the Company, identify ways in which the operations of Parent and the
Company can be coordinated and develop plans for the operation and growth of the
Company. The Chief Executive Officers shall meet in person, by telephone or by
videoconference at least monthly and the other members of the Transition
Committee shall meet as directed by the Chief Executive Officers.
(b) The Company agrees to consult with Parent regarding the Company Budget
for fiscal year 2001 and give reasonable consideration to the views of Parent
with respect thereto. Except as Parent otherwise agrees in writing, the Company
Budget for the fiscal year 2001 will not make or authorize the making of:
(a) any capital expenditures or operation and maintenance expenditures in excess
of an amount equal to the comparable amounts for such items in the Company
Budget for the year 2000, REDUCED BY (A) (I) budgeted expenditures in the
Company Budget for fiscal year 2000 for the 550MW merchant facilities located in
Gregory, Texas, and (II) the incremental benefits of the "one utility" cost
initiative, and INCREASED BY (B) (I) any additional amount required in order to
satisfy the Company's obligations under the Clean Air Act, as amended, and
(II) a 2% inflation adjustment for operation and maintenance expenditures; and
(b) any acquisition of, or investment in, assets or stock of, or other interest
in, any other person or entity, except (I) for the required earnout payment
provided for in the merger agreement related to LG&E Capital Corp.'s acquisition
of CRC Holdings Corp. and (II) funding of ServiConfort Argentina, S.A., up to
$1 million.
6.2. INTERIM OPERATIONS. The Company covenants and agrees as to itself and
its subsidiaries that (where reasonably practicable) it shall consult with
Parent with respect to its significant business plans and decisions (including
as contemplated by Section 6.1 of this Agreement) and, after the date hereof and
prior to the Effective Time (unless Parent shall otherwise approve in writing,
which approval shall not be unreasonably withheld or delayed and except as
otherwise expressly contemplated by this Agreement or as set forth in
Section 6.2 of the Company Disclosure Letter):
(a) the business of the Company and its subsidiaries shall be conducted only
in the ordinary and usual course and, to the extent consistent therewith, it and
its subsidiaries shall use their respective reasonable best efforts to
(i) subject to prudent management of workforce needs and ongoing programs
currently in force, preserve its business organization intact and maintain its
existing relations
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and goodwill with customers, suppliers, distributors, creditors, lessors,
employees and business associates, (ii) maintain and keep material properties
and assets in good repair and condition, subject to ordinary wear and tear and
(iii) maintain in effect all existing governmental permits that are required for
the continued operation of the Company's and its subsidiaries' respective
businesses in all material respects as they are currently conducted;
(b) neither the Company nor any of its subsidiaries shall (i) amend its
articles of incorporation or by-laws; (ii) split, combine, subdivide or
reclassify its outstanding shares of capital stock; (iii) declare, set aside or
pay any dividend payable in cash, stock or property in respect of any capital
stock (other than (A) to the Company or the Company's wholly owned subsidiaries,
(B) dividends required to be paid on any preferred stock of any subsidiary of
the Company outstanding on the date hereof or preferred stock issued to
refinance currently outstanding preferred stock or debt in accordance with the
terms of this Agreement, in each case, in accordance with their respective
terms, (C) regular quarterly dividends on Shares with usual record and payment
dates not, during any fiscal year, in excess of 104% of the dividends per Share
for the immediately preceding fiscal year, and (D), a special dividend with a
record date in the fiscal quarter in which the Effective Time occurs in a per
Share amount up to the amount of the dividend declared per Share by the Company
in the immediately preceding fiscal quarter multiplied by a fraction, the
numerator of which is the number of days elapsed in the then current fiscal
quarter over the total number of days in the then current fiscal quarter); or
(iv) repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of its capital stock or any securities convertible into or exchangeable or
exercisable for any shares of its capital stock (other than (A) as required by
the respective terms of any preferred stock of any subsidiary of the Company
outstanding on the date hereof or preferred stock issued to refinance currently
outstanding preferred stock or debt in accordance with the terms of this
Agreement, (B) in connection with the repurchase, redemption or refinancing of
preferred stock of any subsidiary of the Company with preferred stock at a lower
cost of funds (calculating such cost on an after-tax basis), (C) in connection
with intercompany purchases of capital stock among wholly owned subsidiaries of
the Company, (D) for the purpose of funding or providing benefits under employee
benefit plans, stock option and other incentive compensation plans, directors
plans and stock purchase and dividend reinvestment plans in accordance with past
practice or as may be permitted by Section 6.11(a) or (E) the redemption, if
required by a final, non-appealable judgment of a court of competent
jurisdiction, of the Rights pursuant to the Rights Agreement;
(c) neither the Company nor any of its subsidiaries shall (i) issue, sell,
pledge, dispose of or encumber any shares of, or securities convertible into or
exchangeable or exercisable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock of any class or
any other property or assets (other than (A) Shares issuable pursuant to options
outstanding on the date hereof under the Stock Plans, issuances of additional
options or rights to acquire Shares granted pursuant to the terms of the Stock
Plans as in effect on the date hereof in the ordinary and usual course of the
operation of such Stock Plans and issuances of Shares pursuant to options
granted after the date hereof pursuant to the Stock Plans, (B) issuances of
Shares in the ordinary and usual course of the Company's Savings Plan and the
Company's 401(k) Savings Plan, each as in effect on the date hereof,
(C) intercompany issuances of capital stock to wholly owned subsidiaries of the
Company, (D) in the case of subsidiaries of the Company, the issuance of
preferred stock in connection with the repurchase, redemption or refinancing of
preferred stock outstanding on the date of this Agreement or issued in
accordance with the terms hereof either at its stated maturity or at a lower
cost of funds (calculating such cost on an after-tax basis) and (E) securities
issuable under the Rights Agreement if required by the terms thereof);
(ii) other than in the ordinary and usual course of business and other than
sales not in excess of $20,000,000 in the aggregate, transfer, lease, license,
guarantee, sell, mortgage, pledge, dispose of or encumber any property or
assets; or (iii) except (A) as required by any Law enacted after the date hereof
or to meet service requirements following an extraordinary weather
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related emergency, (B) for acquisitions permitted by Section 6.2(c)(iv),and
(C) for annual capital expenditures not in excess of $12,000,000 and annual
operation and maintenance expenditures not in excess of $13,000,000, in each
case only in respect of expenditures required to discharge regulatory
responsibilities for service reliability, make or authorize or commit for any
capital expenditures or operation and maintenance expenditures in excess of the
amount budgeted by the Company or its subsidiaries for capital expenditures and
operation and maintenance expenditures in the budget for fiscal year 2000 (and
set forth in the Company Disclosure Letter) or, with respect to expenditures in
2001, the budget prepared in accordance with Section 6.1(b) (the budget for
either fiscal year 2000 or 2001, being, as applicable, the "COMPANY BUDGET"); or
(iv) by any means, make any acquisition of, or investment in, assets or stock
of, or other interest in, any other Person or entity except as provided in the
Company Budget;
(d) neither the Company nor any of its subsidiaries shall (i) incur, assume
or prepay any long-term debt or incur or assume any short-term debt (other than
(A) in the ordinary and usual course of business in amounts and for purposes
consistent with past practice under existing lines of credit or replacements
thereof or as required to fund the Company Budget, (B) the incurrence of
long-term indebtedness in connection with the refinancing of existing
indebtedness or commercial paper either at its stated maturity or at a lower
cost of funds (calculating such cost on an after-tax basis) or as required to
fund the Company Budget and (C) short-term debt or long-term debt incurred to
finance the Excluded Effects), (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any third-party, including by means of any "keep well" or
other agreement to support or maintain any financial statement condition of
another person, except in the ordinary and usual course of business (other than
(A) arrangements between the Company and its wholly owned subsidiaries or among
its wholly owned subsidiaries, (B) indebtedness, "keep well" or other similar
agreements in an amount not to exceed $25,000,000 incurred to finance
acquisitions permitted by (and subject to the limitations contained in)
Section 6.2(c)(iv) or capital or operation and maintenance expenditures
permitted by (and subject to the limitations contained in)
Section 6.2(c)(iii) and (C) guarantees or other agreements in connection with
the refinancing of existing indebtedness, preferred stock or commercial paper
either at its stated maturity or at a lower cost of funds (calculating such cost
on an after tax basis), (iii) accelerate or delay collection of notes or
accounts receivable in advance of or beyond their regular due dates or the dates
consistent with past practice, or (iv) change any accounting principle, practice
or method in a manner that is inconsistent with past practice, except to the
extent required by U.S. GAAP as advised by the Company's regular independent
accountants;
(e) neither the Company nor any of its subsidiaries shall, other than in the
ordinary and usual course of business, (i) enter into, modify, amend, or
terminate any material contract (it being agreed that the Company shall consult
with Parent, and give reasonable consideration to any views of Parent, with
respect to the entering into, modification, amendment or termination of any
other contract), (ii) waive, release, relinquish or assign any material contract
(or any of the rights of the Company or any of its subsidiaries thereunder),
right or claim (it being agreed that the Company shall consult with Parent, and
give reasonable consideration to any views of Parent, with respect to the
waiver, release, relinquishment or assignment of any other contract, right or
claim), or (iii) cancel or forgive any material indebtedness (it being agreed
that the Company shall consult with Parent, and give reasonable consideration to
any views of Parent, with respect to the cancellation or forgiveness of any
other indebtedness) owed to the Company or any of its subsidiaries;
(f) neither the Company nor any of its subsidiaries shall adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization (other than the Merger);
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(g) except as may be required by applicable Law, neither the Company nor any
of its subsidiaries shall (i) terminate, establish, adopt, enter into, make any
new grants or awards under, amend or otherwise modify, any Compensation and
Benefit Plans (other than issuances of additional options or rights to acquire
Shares granted pursuant to the terms of the Stock Plans as in effect on the date
hereof in the ordinary and usual course of the operation of such Stock Plans) or
(ii) increase the salary, wage, bonus or other compensation of any employees,
except increases occurring in the ordinary and usual course of business
consistent with past practice (which shall include normal periodic performance
reviews and related compensation and benefit increases);
(h) except as may be required by applicable Law, neither the Company nor any
of its subsidiaries shall grant any severance or termination pay to, or enter
into any employment or severance agreement with any director, officer or other
employee of the Company or its subsidiaries, other than grants of severance or
termination pay pursuant to severance or termination agreements or policies in
effect as of the date hereof and set forth in Section 5.1(h) of the Company
Disclosure Letter and entry into employment or severance agreements with persons
filling vacancies of persons having left the employment of the Company and its
subsidiaries, which employment or severance agreements shall be entered into
only in the ordinary course of business consistent with past practice and shall
contain the terms set forth in Section 6.2(h) of the Company Disclosure Letter;
(i) neither the Company nor any of its subsidiaries shall settle or
compromise any material claims or litigation, other than (it being agreed that
the Company shall not take any of the following actions without first discussing
them with Parent and giving reasonable consideration to any views of Parent on
such matters) (A) settlement or compromise, in the ordinary course of business
consistent with past practice (which includes the payment of final and
unappealable judgements) or in accordance with their terms, of claims or
litigation (I) reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of the Company
included in the Company's reports filed with the SEC or (II) incurred in the
ordinary and usual course of business or (B) settlement or compromise as part of
or pursuant to any settlements of any rate filings before the public utility
commission of any state or the FERC pending on the date of this Agreement;
(j) neither the Company nor any of its subsidiaries shall make any material
Tax election or, except as required by applicable Law, permit any insurance
policy naming it as a beneficiary or loss-payable payee to be canceled or
terminated except in the ordinary and usual course of business or as may be
required by changes in applicable Law;
(k) (i) except as permitted pursuant to Section 6.2(c) or as required
pursuant to tariffs on file with the FERC as of the date hereof, neither the
Company nor any of its subsidiaries shall:(A) commence construction of any
additional gas storage capacity or any additional transmission or delivery
capacity, (B) commence construction of or purchase any additional generating
equipment or facility or (C) obligate itself to purchase or otherwise acquire,
or to sell or otherwise dispose of, or to share, any additional gas storage,
generating, transmission or delivery plants or facilities, and (ii) other than
currently pending rate filings and except as expressly set forth in the Company
Budget, neither the Company nor any of its subsidiaries shall make or propose
any changes in its or its subsidiaries' regulated rates or charges (other than
automatic cost pass through rate adjustments), standards of service or
accounting from those in effect on the date hereof, initiate any general rate
case, make any filing (or any amendment thereto), or effect any agreement,
commitment, arrangement or consent, whether written or oral, formal or informal,
with respect thereto, without first discussing with Parent and giving reasonable
consideration to any views of Parent on such matters. Neither the Company nor
any of its subsidiaries shall make any filing to change its rates on file with
the FERC if such filing or change is reasonably likely to have a Company
Material Adverse Effect. Any regulatory order potentially imposing any such
obligation shall be promptly forwarded to Parent;
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(l) except as otherwise expressly provided for in this Agreement or as
required by regulatory authorities or pursuant to publicly filed tariffs,
neither the Company nor any of its subsidiaries shall enter into any agreement
or arrangement, or amend or modify any existing agreement or arrangement, or
engage in any new transaction, with any of their respective Affiliates on terms
to the Company or any of its subsidiaries less favorable than could be
reasonably expected to have been obtained with an unaffiliated third party on an
arm's-length basis; and
(m) neither the Company nor any of its subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
6.3. ACQUISITION PROPOSALS. (a) The Company agrees that (i) it and its
officers and directors shall not, (ii) its subsidiaries and its subsidiaries'
officers and directors shall not and (iii) it shall direct and use its best
efforts to cause its and its subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it or any
of its subsidiaries ("REPRESENTATIVES")) not to, directly or indirectly,
initiate, solicit, encourage or otherwise facilitate any inquiries or the making
of any proposal or offer with respect to a merger, reorganization, share
exchange, consolidation or similar transaction involving, or any purchase of all
or any substantial portion of the assets of the Company, Kentucky Utilities
Company, Louisville Gas and Electric Company or LG&E Capital Corp. (in each
case, determined on a consolidated basis) or any substantial portion of the
equity securities of any of the Company, Kentucky Utilities Company, Louisville
Gas and Electric Company or LG&E Capital Corp. (any such proposal or offer being
hereinafter referred to as an "ACQUISITION PROPOSAL"). The Company further
agrees that (i) it and its officers and directors shall not, (ii) its
subsidiaries and its subsidiaries' officers and directors shall not, and
(iii) that it shall direct and use its best efforts to cause its and its
subsidiaries' Representatives not to, directly or indirectly, engage in any
negotiations or discussions concerning, or provide any confidential information
or data to, any Person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal;
PROVIDED, HOWEVER, that nothing contained in this Agreement shall prevent the
Company or its Board of Directors from (A) complying with Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal;
(B) providing access to its properties, books and records and providing
information in response to a request therefor by a Person who has made an
unsolicited bona fide written Acquisition Proposal if the Board of Directors
receives from the Person so requesting such information an executed
confidentiality agreement on terms substantially similar to those contained in
the Confidentiality Agreement (as defined in Section 9.7)(except for such
changes specifically necessary in order for the Company to be able to comply
with its obligations under this Agreement); (C) engaging in any negotiations or
discussions with any Person who has made an unsolicited bona fide written
Acquisition Proposal; or (D) recommending such an Acquisition Proposal to the
shareholders of the Company or withdrawing or modifying in any adverse manner
its approval or recommendation of this Agreement, if and only to the extent
that, in each case referred to in clauses (B), (C) or (D), (i) the Company
Requisite Vote shall not have been obtained and (ii) the Board of Directors of
the Company determines in good faith after consultation with outside legal
counsel that such action is necessary in order for its directors to comply with
their fiduciary duties under applicable law, (iii) the board of directors of the
Company shall have determined in good faith, after consultation with its legal
counsel and financial advisors that, (x) in the case of clause (D) above only,
such Acquisition Proposal, if accepted, is reasonably capable of being
consummated, taking into account legal, financial, regulatory, timing and
similar aspects of the proposal and the Person making the proposal and would, if
consummated, result in a transaction more favorable to the Company's
shareholders from a financial point of view than the transaction contemplated by
this Agreement (any such more favorable Acquisition Proposal being referred to
in this Agreement as a "SUPERIOR PROPOSAL") and (y) in the case of clauses
(B) and (C) above only, such actions could reasonably be expected to lead to a
Superior Proposal and (iv) such actions do not continue for more than twenty
business days with respect to any Acquisition Proposal (or amendment thereto).
The Company agrees that it will immediately cease and cause to be terminated
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any existing activities, discussions or negotiations with any Persons conducted
heretofore with respect to any Acquisition Proposal. The Company agrees that it
will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 6.3 and in the Confidentiality Agreement. The Company agrees that it
will notify Parent promptly if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such discussions or
negotiations are sought to be initiated or continued with, any of its
Representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any proposals or offers and
thereafter shall keep Parent informed, on a reasonably current basis, on the
status and terms of any such proposals or offers and the status of any such
discussions or negotiations. The Company also agrees that it will promptly
request each Person that has heretofore executed a confidentiality agreement in
connection with its consideration of acquiring it or any of its subsidiaries to
return all confidential information heretofore furnished to such Person by or on
behalf of it or any of its subsidiaries.
(b) Notwithstanding anything in this Section 6.3 to the contrary, if, at any
time prior to obtaining the Company Requisite Vote, the Company's board of
directors determines in good faith, on the basis of the advice of its financial
advisors and outside counsel, in response to an Acquisition Proposal that was
unsolicited and that did not otherwise result from a breach of Section 6.3(a),
that such proposal is a Superior Proposal, the Company or its board of directors
may terminate this Agreement if, and only if, the Company shall concurrently
with such termination enter into a definitive agreement containing the terms of
a Superior Proposal; PROVIDED HOWEVER, that the Company shall not terminate this
Agreement pursuant to this sentence, and any purported termination pursuant to
this sentence, shall be void and of no force or effect, unless the Company shall
have complied with (i) all the provisions of this Section 6.3, including the
notification provisions in this Section 6.3, (ii) the following proviso, and
(iii) all applicable requirements of Section 8.3, including the payment of the
termination fee described in Section 8.5(b) prior to such termination; and
PROVIDED, FURTHER, however, that the Company shall not exercise its right to
terminate this Agreement pursuant to this Section 6.3 until after five business
days following Parent's receipt of written notice (a "NOTICE OF SUPERIOR
PROPOSAL") advising Parent that the Company's board of directors has received a
Superior Proposal and that such board of directors will, subject to any action
taken by Parent pursuant to this sentence, cause the Company to accept such
Superior Proposal, specifying the material terms and conditions of the Superior
Proposal and identifying the person making such Superior Proposal (it being
understood and agreed that any amendment to the price or any other material term
of a Superior Proposal shall require an additional Notice of Superior Proposal
and a new five business day period).
6.4. ACCURACY OF PROXY STATEMENT AND CIRCULAR. The Company agrees, as to
itself and its subsidiaries, that (i) the proxy statement of the Company (the
"PROXY STATEMENT") and any amendment or supplement thereto will comply in all
material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder and (ii) (A) none of the information supplied
by it or any of its subsidiaries for inclusion or incorporation by reference in
the Proxy Statement will at the date of mailing to shareholders or at the time
of the Shareholders Meeting (as defined in Section 6.5) contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading and (B) all of the
information supplied by it or any of its subsidiaries for inclusion or
incorporation by reference in the Circular (as defined below) will, as of the
date of mailing to Parent's shareholders and to the best knowledge and belief of
the Company (which will have taken all reasonable care to ensure that such is
the case), be in accordance with the facts and will not omit anything likely to
affect the import of such information. Parent agrees, as to itself, Merger Sub
and its subsidiaries, that (i) the circular (the "CIRCULAR") to be mailed to
Parent's shareholders in connection with the meeting of Parent's shareholders
referred to in Section 6.5 containing a notice convening such meeting, forms of
proxy and such other information (if any) as may be required by the rules and
regulations of the LSE and any supplements thereto and any other
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circulars or documents issued to shareholders, employees, the holders of options
under Parent's benefit plans and option schemes or debentureholders of Parent,
will comply in all material respects with the Companies Act, as amended, the
Financial Services Act 1986 and the rules and regulations thereunder and the
rules and requirements of the LSE and (ii)(A) all such information included or
incorporated by reference in such documents will, as of the date of mailing to
Parent's shareholders and to the best knowledge and belief of Parent (which will
have taken all reasonable care to ensure that such is the case), be in
accordance with the facts and will not omit anything likely to affect the import
of such information and (B) none of the information supplied by it or any of its
subsidiaries for inclusion or incorporation by reference in the Proxy Statement
will at the date of mailing to shareholders or at the time of the Shareholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
6.5. SHAREHOLDERS MEETINGS. The Company will take, in accordance with
applicable law and its articles of incorporation and by-laws, all action
necessary to convene a meeting of holders of Shares (the "SHAREHOLDERS MEETING")
as promptly as reasonably practicable after the execution of this Agreement to
consider and vote upon the approval of this Agreement. Parent will take, in
accordance with its articles of association and memorandum of association and
the rules and regulations of the LSE, all action necessary to convene a meeting
of holders of Parent Ordinary Shares (the "PARENT STOCKHOLDERS MEETING") as
promptly as reasonably practicable after the execution of this Agreement to
consider and vote upon the approval of the Merger and any matters related
thereto with respect to which the approval of Parent's shareholders is required.
Notwithstanding the foregoing, Parent and the Company shall each use their
reasonable best efforts to convene their respective meetings of shareholders on
the same date. Subject to fiduciary obligations and the requirements of
applicable Law, each of the Company's and Parent's board of directors shall
recommend such approvals and shall take all lawful action to solicit such
approvals.
6.6. FILINGS; OTHER ACTIONS; NOTIFICATION.
(a) The Company shall, in cooperation with Parent, use its best efforts to
prepare and file as promptly as is practicable after the date hereof with the
SEC the Proxy Statement and shall promptly notify Parent of the receipt of all
comments of the SEC with respect to the Proxy Statement and of any request by
the SEC for any amendment or supplement thereto or for additional information
and shall promptly provide to Parent copies of all correspondence between the
Company and/or any of its representatives and the SEC with respect to the Proxy
Statement. Parent shall, in cooperation with the Company, promptly prepare and
lodge on a confidential basis with the LSE the Circular. Parent shall promptly
notify the Company of the receipt of all comments of the LSE with respect to the
Circular and of any request by the LSE for any amendment or supplement thereto
or for additional information and shall promptly provide to the Company copies
of all correspondence between Parent and/or any of its representatives and the
LSE with respect to the Circular. The Company and Parent each shall use its
reasonable best efforts to have the Proxy Statement and the Circular approved by
the SEC and the LSE, respectively. Parent and the Company shall coordinate with
each other so that the content of the Circular and the Proxy Statement is as
consistent as is reasonably practicable.
(b) The Company and Parent shall cooperate with each other and use (and
shall cause their respective subsidiaries to use) their respective best
reasonable efforts to take or cause to be taken all actions, and do or cause to
be done all things, necessary, proper or advisable on its part under this
Agreement and applicable Laws to consummate and make effective the Merger and
the other transactions contemplated by this Agreement as soon as practicable,
including preparing and filing as promptly as practicable all documentation to
effect all necessary notices, applications, petitions, reports and other filings
and to obtain as promptly as practicable all consents, registrations, approvals,
licenses, permits, qualifications, orders and authorizations necessary or
advisable to be obtained
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from any third party and/or any Governmental Entity in order to consummate the
Merger or any of the other transactions contemplated by this Agreement. Subject
to applicable Laws relating to the exchange of information (including any
obligations pursuant to any listing agreement with or rules of any securities
exchange), Parent and the Company shall have the right to review and approve
(such approval not to be unreasonably withheld or delayed) in advance, and to
the extent practicable each will consult the other on, all the information
relating to Parent or the Company, as the case may be, and any of their
respective Affiliates, that appear in any filing made with, or written materials
submitted to, any third party and/or any Governmental Entity (including any
securities exchange) in connection with the Merger and the other transactions
contemplated by this Agreement.
(c) The Company and Parent each shall, upon request by the other, furnish
the other with all true and accurate information concerning itself, its
subsidiaries, directors, officers and shareholders and such other matters as may
be reasonably necessary or advisable in connection with the Proxy Statement, the
Circular or any other statement, filing, notice or application made by or on
behalf of Parent, the Company or any of their respective subsidiaries to any
third party and/or any Governmental Entity in connection with the Merger and the
transactions contemplated by this Agreement.
(d) The Company and Parent each shall promptly provide the other party with
copies of all filings made by either the Company or Parent with any state or
federal court, administrative agency, commission or other Governmental Entity in
connection with this Agreement and the transactions contemplated hereby. The
Company and Parent each shall keep the other apprised of the status of matters
relating to completion of the transactions contemplated hereby, including
promptly furnishing the other with copies of any notices or other communications
received by Parent or the Company, as the case may be, or any of its
subsidiaries, from any third party and/or any Governmental Entity with respect
to the Merger and the other transactions contemplated by this Agreement. The
Company and Parent each shall give prompt notice to the other of any change that
is reasonably likely to result in a Company Material Adverse Effect or Parent
Material Adverse Effect, respectively.
(e) In the event any claim, action, suit, investigation or other proceeding
by any Governmental Entity or other Person or other legal or administrative
proceeding is commenced that questions the validity or legality of this
Agreement, or the Merger or the other transactions contemplated by this
Agreement or claims damages in connection therewith, the Company and Parent each
agree to cooperate and use their best reasonable efforts to defend against and
respond thereto.
6.7.(a) ACCESS. Upon reasonable notice, and except as may otherwise be
required by applicable law, the Company shall (and shall cause its subsidiaries
to) afford Parent's officers, employees, counsel, lenders, accountants and other
authorized representatives reasonable access, during normal business hours
throughout the period prior to the Effective Time, to its properties, books,
contracts and records and, during such period, the Company shall (and shall
cause its subsidiaries to) furnish promptly to Parent access to (and, where
reasonable, copies of,) all information concerning its business, properties and
personnel as may reasonably be requested, PROVIDED that no investigation
pursuant to this Section shall affect or be deemed to modify any representation
or warranty made by the Company, and PROVIDED FURTHER that the foregoing shall
not require the Company to permit any inspection, or to disclose any
information, that in the reasonable judgment of the Company would result in the
disclosure of any trade secrets of third parties or violate any of its
obligations with respect to confidentiality if the Company shall have used its
reasonable best efforts to obtain the consent of such third party to such
inspection or disclosure. All requests for information made pursuant to this
Section shall be directed to an executive officer of the Company or such Person
as may be designated by its officers. All such information shall be governed by
the terms of the Confidentiality Agreement.
(b) Parent shall from time to time, (i) at the request of the Company,
furnish to the Company such information concerning its financial condition and
Financing Plan as may be reasonably requested,
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and (ii) promptly provide the Company with the final drafts of, and any
modifications to, its Financing Plan for the Merger.
6.8. STOCK EXCHANGE DE-LISTING. The Surviving Corporation shall use its
best efforts to cause the Shares to be de-listed from the NYSE and de-registered
under the Exchange Act as soon as practicable following the Effective Time.
6.9. PUBLICITY. Other than with respect to the initial press release with
respect to the Merger and the other transactions contemplated hereby, subject to
each party's disclosure obligations under Law or the rules of any applicable
securities exchange, the Company and Parent each shall, if practicable, refrain
from issuing or making any public announcement or statement with respect to the
Merger and the other transactions contemplated by this Agreement without the
prior consent of the other party (which consent shall not be unreasonably
withheld or delayed).
6.10. CERTAIN EMPLOYEE AGREEMENTS AND WORKFORCE MATTERS. Subject to
Sections 6.11 and 6.19, Parent and its subsidiaries shall honor and perform,
without modification, all contracts, agreements, collective bargaining
agreements and commitments of the Company made prior to the date hereof and
disclosed to Parent (or established or amended in accordance with or as
permitted by this Agreement), including, but not limited to, the Compensation
and Benefit Plans, which apply to any current or former employee or director of
the Company and its subsidiaries; PROVIDED, HOWEVER, that nothing herein shall
prevent Parent from enforcing such contracts, agreements, collective bargaining
agreements and commitments in accordance with their terms, including any right
to amend, modify, suspend, revoke or terminate any such contract, agreement,
collective bargaining agreement or commitment in accordance with its terms.
6.11. BENEFITS.
(a) STOCK OPTIONS. (i) At the Effective Time, each Company Option, whether
vested or unvested, shall be deemed to constitute an option to acquire, on the
same terms and conditions as were applicable under such Company Option, the
number of American Depositary Shares of Parent (the "ADS'S"), each of which
represents four Parent Ordinary Shares, equal to the result (rounded down to the
nearest whole ADS) of multiplying the number of Shares subject to the Company
Option immediately prior to the Effective Time by the Conversion Ratio (as
defined below), at an exercise price per ADS equal to the result (rounded up to
the nearest whole cent) of dividing the per share exercise price of such Company
Option immediately prior to the Effective Time by the Conversion Ratio (it being
understood that the exercise price shall be converted into dollars at the rate
prevailing at the close of business on the business day prior to the Effective
Time); PROVIDED, HOWEVER, that in the case of any Company Option to which
Section 422 of the Code applies, the adjustments provided for in this Section
shall be effected in a manner consistent with the requirements of
Section 424(a) of the Code. At or prior to the Effective Time, the Company shall
make all necessary arrangements with respect to the Stock Plans to permit the
assumption of the unexercised Company Options by Parent pursuant to this
Section. For purposes of this Section, the term "CONVERSION RATIO" means a
fraction, the numerator of which is the average of the high and low sales price
of one Share on the NYSE on the trading day immediately preceding the Effective
Time and the denominator of which is the average of the high and low sales price
of one ADS on the NYSE on the trading day immediately prior to the Effective
Time. Notwithstanding the foregoing, each holder of such Company Option, if such
holder elects in writing delivered to the Company at least three business days
prior to the Effective Time, may at the Effective Time exchange each such
Company Option, whether or not then exercisable, for an amount in cash to be
paid by the Company, equal to the product of (x) the number of Shares previously
subject to such Company Option and (y) the excess of the difference between the
Merger Consideration over the per Share exercise price of such Company Option,
less any amount the Company is required to deduct or withhold with respect to
such payment. Each such Company Option so exchanged shall be immediately
canceled.
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(ii) Effective at the Effective Time, Parent shall assume each Company
Option still outstanding in accordance with the terms of the Stock Plan under
which it was issued and the stock option agreement by which it is evidenced. At
or prior to the Effective Time, Parent shall take all corporate action necessary
to reserve for issuance a sufficient number of Parent Ordinary Shares for
delivery upon exercise of Company Options assumed by it in accordance with this
Section. As soon as practicable after the Effective Time, Parent shall file a
registration statement on Form F-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), or another appropriate form with respect
to the ADS's subject to such Company Options, and shall use its reasonable best
efforts to maintain the effectiveness of such registration statement (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Company Options remain outstanding.
(iii) Prior to the Effective Time, the Board of Directors of Parent, or an
appropriate committee of non-employee directors thereof, shall adopt a
resolution consistent with the interpretive guidance of the SEC so that the
ADS's or options to acquire ADS's pursuant to this Agreement and the Merger
shall be an exempt transaction for purposes of Section 16 of the Exchange Act
("SECTION 16").
(iv) At the Effective Time, each outstanding Share awarded as a restricted
Share shall be canceled and converted into the right to receive the Merger
Consideration in accordance with Section 4.1(a) of this Agreement; PROVIDED,
HOWEVER, that the restricted Shares shall not vest and the restrictions thereon
shall not lapse on and until the first day immediately following the Effective
Time, and the Merger Consideration shall thereafter be paid to each holder of
such formerly restricted Shares at the same time and on the same terms as
provided in Section 4.2 of this Agreement. Prior to the Effective Time, the
Company shall take all necessary actions in order to effectuate the foregoing.
(b) EMPLOYEE BENEFITS. Parent agrees that, during the period commencing at
the Effective Time and ending on the second anniversary thereof, the employees
of the Company and its subsidiaries (the "COMPANY EMPLOYEES") will continue to
be provided with benefits under employee benefit plans (other than plans
involving the issuance of Shares) that are no less favorable in the aggregate
than those currently provided by the Company and its subsidiaries to such
employees as of the date hereof. Parent shall, and shall cause the Surviving
Corporation to, honor all employee benefit obligations to current and former
employees under the Compensation and Benefit Plans and all employee severance
plans (or policies) in existence on the date hereof and all employment or
severance agreements entered into by the Company or adopted by the board of
directors of the Company prior to the date hereof and disclosed to Parent.
(c) LONG-TERM INCENTIVE PLAN. Notwithstanding anything set forth in
Section 6.11(b) to the contrary, in the event that Parent or the Surviving
Corporation fails to maintain equity-based employee benefit plans for the
benefit of the Company Employees, Parent shall, or shall cause the Surviving
Corporation to, provide for a period of at least twenty-four months following
the Effective Time, a long-term incentive plan for the benefit of the Company
Employees, which plan would provide such Company Employees with bonuses or other
payments, upon the achievement of reasonable performance criteria, which are no
less favorable than the value of the equity-based compensation otherwise
provided for under the long-term incentive Compensation and Benefit Plans as in
existence immediately prior to the date hereof.
(d) ELECTION TO PARENT'S BOARD OF DIRECTORS. At the Effective Time of the
Merger, Parent shall promptly increase the size of its Board of Directors in
order to cause Roger W. Hale to be appointed to Parent's Board of Directors.
Roger W. Hale shall be entitled to serve on Parent's board of directors in
accordance with Roger W. Hale's Employment Agreement.
(e) ADVISORY BOARD. The directors of the Company at the Effective Time
shall, after the Effective Time, serve as members of a U.S. advisory board to
provide advice with respect to operations of the Company and its subsidiaries,
businesses and regulatory developments in the United States
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generally and such other matters as the members of the advisory board, Parent
and the Company shall mutually agree.
6.12. EXPENSES. The Surviving Corporation shall pay all charges and
expenses, including those of the Paying Agent, in connection with the
transactions contemplated in Article IV, and Parent shall reimburse the
Surviving Corporation for such charges and expenses. Except as otherwise
provided in Section 8.5, whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the Merger and the other
transactions contemplated by this Agreement shall be paid by the party incurring
such expense, except that expenses incurred in connection with printing and
mailing the Proxy Statement and the Circular shall be shared equally by Parent
and the Company.
6.13. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) From and
after the Effective Time, Parent agrees that it will indemnify and hold harmless
each present and former director and officer of the Company and its subsidiaries
(when acting in such capacity) determined as of the Effective Time (the
"INDEMNIFIED PARTIES"), against any costs or expenses (including reasonable
attorneys' fees and expenses), judgments, fines, losses, claims, damages or
liabilities (collectively, "COSTS") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time (including all liabilities to the extent they are
based in whole or in part on or arise in whole or in part out of or pertain to
this Agreement or the transactions contemplated hereby), whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent that the
Company or, if applicable, such subsidiary, would have been permitted under the
KBCA or other relevant state statute and the Company's or, if applicable, such
subsidiary's, articles of incorporation and its by-laws in effect on the date
hereof to indemnify such Person (and Parent shall also advance expenses as
incurred to the fullest extent permitted under applicable law; PROVIDED,
HOWEVER, that the Person to whom expenses are advanced provides an undertaking
to repay such advances if it is ultimately determined that such Person is not
entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 6.13, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Parent thereof, but the
failure to so notify shall not relieve Parent of any liability it may have to
such Indemnified Party except to the extent such failure prejudices Parent. In
the event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) Parent shall pay the reasonable
fees and expenses of counsel selected by the Indemnified Parties, which counsel
shall be reasonably satisfactory to Parent, promptly after statements therefor
are received and otherwise advance to such Indemnified Party upon request,
reimbursement of documented expenses reasonably incurred, (ii) Parent will
cooperate in the defense of any such matter, (iii) any determination required to
be made with respect to whether an Indemnified Party's conduct complies with the
standards set forth under applicable law and the articles of incorporation or
bylaws shall be made by independent counsel mutually acceptable to Parent and
the Indemnified Party; PROVIDED, HOWEVER, that Parent shall be obligated
pursuant to this paragraph (b) to pay for only one firm or counsel for all
Indemnified Parties in any jurisdiction, except to the extent there is, in the
opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of such Indemnified Party and any other Indemnified Party or Indemnified
Parties, in which case each Indemnified Party with a conflicting position on a
significant issue shall be entitled to retain separate counsel satisfactory to
it (subject to the consent of Parent, which shall not be unreasonably withheld),
(ii) the Indemnified Parties shall cooperate in the defense of any such matter
and (iii) Parent shall not be liable for any settlement effected without its
prior written consent (which consent may not be unreasonably withheld or
delayed); and PROVIDED FURTHER that Parent shall not have any obligation
hereunder to any Indemnified
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Party if and when a court of competent jurisdiction shall ultimately determine,
and such determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
Law. In the event any Indemnified Party is required to bring any action to
enforce rights against, or to collect moneys due from, Parent under this
Agreement and is successful in such action, Parent shall reimburse such
Indemnified Party for all of its reasonable expenses in bringing and pursuing
such action.
(c) The Surviving Corporation shall maintain the Company's existing
officers' and directors' liability insurance ("D&O INSURANCE") for a period of
six years after the Effective Time so long as the annual premium therefor is not
in excess of 200% of the last annual premium paid prior to the date hereof (the
"CURRENT PREMIUM"); PROVIDED, HOWEVER, that (i) the Surviving Corporation may
substitute therefor policies (which may be "tail" policies) containing terms
with respect to coverage and amount no less favorable in any material respect to
such directors and officers; (ii) if the existing D&O Insurance expires, is
terminated or canceled during such six-year period, the Surviving Corporation
will use its best efforts to obtain as much D&O Insurance as can be obtained for
the remainder of such period for a premium not in excess (on an annualized
basis) of 200% of the Current Premium; and (iii) if the annual premiums for the
existing D&O Insurance exceeds 200% of the Current Premium, the Surviving
Corporation shall obtain a policy with the best coverage available for the
remainder of such period, for a premium not in excess (on an annualized basis)
of 200% of the Current Premium.
(d) If the Surviving Corporation or any of its successors or assigns
(i) shall consolidate with or merge into any other corporation or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other entity, then, and
in each such case, proper provisions shall be made so that the successors and
assigns of the Surviving Corporation shall assume all of the obligations set
forth in this Section 6.13. The provisions of this Section 6.13 are intended to
be for the benefit of, and shall be enforceable by, each of the Indemnified
Parties, their heirs and their representatives.
(e) To the fullest extent permitted by law, from and after the Effective
Time, all rights to indemnification as of the date hereof in favor of the
employees, agents, directors and officers of the Company and its subsidiaries
with respect to their activities as such prior to the Effective Time, as
provided in their respective articles of incorporation and by-laws or comparable
documents (or any other document containing such rights) in effect on the date
hereof, or otherwise in effect on the date hereof, shall survive the Merger and
shall continue in full force and effect for a period of not less than six years
from the Effective Time, provided that in the event any claim or claims are
asserted or made within such six-year period (provided that nothing herein shall
be deemed to extend or otherwise modify any statute of limitations with respect
to any claim), all such rights to the indemnification in respect of such claim
or claims shall continue until the final disposition thereof. Notwithstanding
the foregoing, Parent may amend or modify the terms of the articles of
incorporation or by-laws or comparable documents of the Company or any of its
subsidiaries after the Effective Time so long as the modification or amendment
does not adversely affect the indemnification rights provided for in the last
preceding sentence.
6.14. TAKEOVER STATUTES. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, each of Parent and the Company and their respective boards of
directors shall grant such approvals and take such actions consistent with their
fiduciary duties and applicable law as are necessary so that such transactions
may be consummated as promptly as practicable on the terms contemplated by this
Agreement or by the Merger and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
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6.15. FINANCING. Parent shall use commercially reasonable efforts to
obtain the financing contemplated by the Financing Plan or alternative financing
therefor on substantially similar terms sufficient to pay the Merger
Consideration to be paid in connection with the Merger.
6.16. TAX-EXEMPT STATUS. The Company shall not, nor shall it permit any of
its subsidiaries to, except as otherwise expressly provided for in this
Agreement, take any action that would be reasonably likely to jeopardize the
qualification of any outstanding revenue bonds which qualify on the date hereof
under Section 142(a) of the Code as "exempt facility bonds" or as tax-exempt
industrial development bonds under Section 103(b)(4) of the Internal Revenue
Code of 1954, as amended, prior to the enactment of the Tax Reform Act of 1986.
6.17. PUHCA; REGULATORY STATUS. Except as expressly contemplated by this
Agreement, the Company shall not, and shall not permit any of its subsidiaries
to, take any action that would cause a change in the Company's status as an
exempt public utility holding company under the PUHCA.
6.18. DERIVATIVE PRODUCTS. The Company shall enter into transactions in
Derivative Products only in a manner consistent with the operating practices
described to Parent and employed by the Company during the previous 18 months.
From and after the date hereof, all transactions in Derivative Products (related
to continuing operations) entered into, and all open positions in and portfolios
of Derivative Products maintained, by the Company or any of its subsidiaries,
shall at all times be in compliance with the Trading Policies (as defined below)
in all material respects. In addition, the Company shall not (a) maintain an
overall short position without the approval of Parent; (b) maintain an overall
long position over the budgeted amount of forecasted excess generation capacity
without the approval of Parent; (c) write call options exceeding adequate excess
generation capacity without the approval of Parent; and (d) write put options
unless load is forecasted to exceed economic generation without the approval of
Parent. From and after the date hereof, all transactions in Derivative Products
(related to discontinued operations) entered into, and all open positions in and
portfolios of Derivative Products maintained, by the Company or any of its
subsidiaries, shall at all times be used only in mitigation of existing risk in
the discontinued merchant portfolios.
Notwithstanding the provisions of this Section 6.18, the Company or any of
its subsidiaries may enter into a transaction or maintain a position in a
Derivative Product that is not in compliance with the provisions of this
Section 6.18 with the prior approval of Parent. Parent and the Company agree to
promptly cause employees of their respective energy trading businesses to meet
and revise the Trading Policies to conform to the Company's current practices in
energy trading and further to reflect the parties' views of the best practice
across energy trading policies worldwide, with such modifications from such
practices as Parent and the Company may agree. The Company agrees to provide
Parent with copies of daily and other periodic or special credit or other risk
management reports relating to the Company's positions in Derivative Products in
a timely manner (in the case of daily reports, they shall be made available no
later than one day after production) together with such other information as
Parent may reasonably request and to consult with Parent regarding the contents
of such on at least a weekly basis as Parent requests and to give reasonable
consideration to any views of Parent.
As used in this Agreement, (i) "APPROVED COMMODITIES" means those
commodities approved within the Trading Policies and (ii) "TRADING POLICIES"
shall mean the Company's Statement of Trading, dated March 22, 1999.
6.19. POST-MERGER OPERATIONS. Following the Effective Time, the Surviving
Corporation shall conduct its operations in accordance with the following:
(a) Principal Corporate Offices. The Surviving Corporation shall maintain
its principal corporate offices in the city of Louisville, in the State of
Kentucky.
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(b) Maintenance of Louisville Gas and Electric Company and Kentucky
Utilities Company. Louisville Gas and Electric Company on the one hand, and
Kentucky Utilities Company on the other hand, shall continue their separate
corporate existences, operating under the names of "Louisville Gas and Electric
Company" and "Kentucky Utilities Company," respectively. The respective
corporate officers of Louisville Gas and Electric Company, on the one hand, and
Kentucky Utilities Company on the other hand, shall be entitled to maintain
their current titles and responsibilities as officers of Louisville Gas and
Electric Company and Kentucky Utilities Company, respectively, unless and until
otherwise determined by the board of directors of Louisville Gas and Electric
Company and the board of directors of Kentucky Utilities Company, respectively,
and the respective headquarters of Louisville Gas and Electric Company and
Kentucky Utilities Company shall be maintained as the headquarters of Louisville
Gas and Electric Company and Kentucky Utilities Company.
(c) Charities. After the Effective Time, Parent shall, or shall cause the
Surviving Corporation to continue to, make annual charitable and community
contributions to the communities served by the Surviving Corporation and
otherwise maintain a substantial level of involvement in community activities in
the State of Kentucky that is comparable to, or greater than, the normal annual
aggregate level of charitable contributions, community development and related
activities carried on by the Company prior to the date hereof. Parent
acknowledges that the primary purpose of the LG&E Energy Foundation Inc. is to
support charitable causes in the service territories of Louisville Gas and
Electric Company and Kentucky Utilities Company, respectively, and shall cause,
and shall ensure that the Surviving Corporation causes, the LG&E Energy
Foundation Inc. to continue to support charitable causes in such service
territories, with such Foundation remaining under the control of the board of
directors of the Surviving Corporation, it being agreed that a majority of such
Foundation's board members shall consist of individuals who reside within the
Surviving Corporation's service territory.
(d) Name. The name of the Surviving Corporation shall be "LG&E Energy Corp."
6.20. CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in this
Agreement shall give the Company, directly or indirectly, the right to control
or direct Parent's operations prior to the Effective Time. Nothing contained in
this Agreement shall give Parent, directly or indirectly, the right to control
or direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, each of the Company and Parent shall exercise, consistent with
the terms and conditions of this Agreement, complete control and supervision
over their respective operations.
6.21. THIRD PARTY STANDSTILL AGREEMENTS. During the period from the date
of this Agreement through the Effective Time, neither the Company nor any of its
subsidiaries shall terminate, amend, modify or waive any provision of or release
any of its rights under any confidentiality or standstill agreement to which it
is a party; PROVIDED, that if, prior to the date on which the Company Requisite
Vote is obtained, such action is required in order for the board of directors of
the Company to comply with its fiduciary duties, the Company may take such
action to the extent necessary to comply with such fiduciary obligation. During
such period, the Company shall, except as aforesaid, take all steps necessary to
enforce, to the fullest extent permitted under applicable Law, the provisions of
any such agreement, including, but not limited to, by obtaining injunctions to
prevent any breaches of such agreements, and to enforce specifically the terms
and provisions thereof in any court having jurisdiction.
6.22. CERTAIN MERGERS. Each of the Company and Parent agrees that it shall
not, and shall not permit any of its subsidiaries to (i) acquire or agree to
acquire any assets or (ii) acquire or agree to acquire, whether by merger,
consolidation, by purchasing a substantial portion of the assets of or equity
in, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, if the entering
into of a definitive agreement relating to or the consummation of such
acquisition, merger or consolidation could reasonably be expected to
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(A) impose any material delay in the expiration or termination of any applicable
waiting period or impose any material delay in the obtaining of, or
significantly increase the risk of not obtaining, any authorizations, consents,
orders, declarations or approvals of any Governmental Entity necessary to
consummate the Merger, (B) significantly increase the risk of any Governmental
Entity entering an order prohibiting the consummation of the Merger,
(C) significantly increase the risk of not being able to remove any such order
on appeal or otherwise or (D) materially delay or materially impede the
consummation of the Merger.
6.23. NECESSARY ACTION. Neither the Company nor Parent, nor any of their
respective subsidiaries, shall take or fail to take any action that is
reasonably likely to result in any failure of the conditions to the Merger set
forth in Article VII, or is reasonably likely to make any representation or
warranty of the Company or Parent contained herein inaccurate in any material
respect at, or as of any time prior to, the Effective Time, or that is
reasonably likely to, individually or in the aggregate, have a Company Material
Adverse Effect or Parent Material Adverse Effect, as the case may be.
6.24. FURTHER ASSURANCES. The parties expressly acknowledge and agree
that, although it is their current intention to effect a business combination
among themselves in the form contemplated by this Agreement, it may be
preferable to effectuate such a business combination by means of an alternative
structure in light of the conditions set forth in Sections 7.1(b) and 7.2(c).
Accordingly, if the only conditions to the parties' obligations to consummate
the Merger which are not satisfied or waived are the receipt of any one or more
of the Company Required Statutory Approvals, Parent Required Statutory
Approvals, Parent Required Consents, Company Required Consents or Governmental
Consents (as defined in Section 7.1(b)), and the adoption of an alternative
structure (that does not result in a substantial diminution for Parent or the
Company of the economic benefits expected to be realized from the Merger or from
the utilization of the structure set forth in Section 1.1 of the Parent
Disclosure Letter) would result in such conditions being satisfied or waived,
then the parties shall use their respective reasonable best efforts to effect a
business combination among themselves by means of a mutually agreed upon
structure other than the Merger that does not result in such diminution;
PROVIDED that, prior to closing any such restructured transaction, all material
third party and Governmental Entity declarations, filings, registrations,
notices, authorizations, consents or approvals necessary for the effectuation of
such alternative business combination shall have been obtained and all other
conditions to the parties' obligations to consummate the Merger as set forth in
Article VII, as applied to such alternative business combination, shall have
been satisfied or waived.
6.25. CONDUCT OF BUSINESS OF MERGER SUB AND US SUBHOLDCO 2. Prior to the
Effective Time, except as may be required by applicable Law and subject to the
other provisions of this Agreement, Parent shall cause Merger Sub and US
Subholdco 2 (i) to perform each of their respective obligations under this
Agreement in accordance with its terms and (ii) not to engage directly or
indirectly in any business or activities of any type or kind and not to enter
into any agreements or arrangements with any Person (other than such agreements
or arrangements as may be necessary or advisable in connection with obtaining
the financing for the Merger), or be subject to or bound by any obligation or
undertaking (other than such obligations or undertakings as may be necessary or
advisable in connection with obtaining the financing for the Merger) which is a
breach of this Agreement.
ARTICLE VII
CONDITIONS
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been duly approved by
holders of Shares constituting the Company Requisite Vote in accordance with
applicable law and the articles of incorporation and by-laws of the Company, and
the Merger and the matter set forth in Section 5.2(c)(ii) with respect to which
the approval of Parent's shareholders is required shall have been approved by
the Parent Requisite Vote.
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(b) REGULATORY CONSENTS. (i) The waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act shall
have expired or been terminated, (ii) review and investigation of the Merger
under Exon-Florio shall have been terminated and the President of the United
States shall have taken no action authorized under Exon-Florio with respect to
the Merger (iii) the Company Required Statutory Approvals and the Parent
Required Statutory Approvals shall have been made or obtained and shall have
become a Final Order, and (iv) all other consents, registrations, approvals,
permits and authorizations required to be obtained in order to lawfully
consummate the Merger prior to the Effective Time by the Company or Parent or
any of their respective subsidiaries from, any Governmental Entity
(collectively, "GOVERNMENTAL CONSENTS") in connection with the execution and
delivery of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby by the Company, Parent and Merger Sub shall
have been made or obtained (as the case may be) and shall have become a Final
Order, except for those that the failure to make or to obtain, individually or
in the aggregate, would not have a Company Material Adverse Effect or a Parent
Material Adverse Effect, as the case may be. A "FINAL ORDER" means action by the
relevant Governmental Entity which has not been reversed, stayed, enjoined, set
aside, annulled or suspended, with respect to which any waiting period
prescribed by law before the transactions contemplated hereby may be consummated
has expired, and as to which all conditions to the consummation of such
transactions prescribed by law, regulation or order have been satisfied.
(c) LITIGATION. No court or Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, law,
ordinance, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and restrains,
enjoins or otherwise prohibits consummation of the Merger or the other
transactions contemplated by this Agreement (collectively, an "ORDER").
7.2. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The obligations
of Parent and Merger Sub to effect the Merger are also subject to the
satisfaction or waiver by Parent at or prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company set forth in Sections 5.1(b), 5.1(c)(i), 5.1(f)(iii), (iv) and (v),
5.1(j), 5.1(p), 5.1(q), 5.1(t), 5.1(w) and 5.1(y) of this Agreement shall be
true and correct in all material respects (a) on the date hereof and (b) on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific date
or time other than the date hereof or the Closing Date, which need only be true
and correct in all material respects as of such date or time), and all other
representations and warranties of the Company set forth in this Agreement shall
be true and correct (i) on the date hereof and (ii) on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of the Closing Date (except for representations and warranties
that expressly speak only as of a specific date or time other than the date
hereof or the Closing Date, which need only be true and correct as of such date
or time) except in each of cases (i) and (ii) for such failures to be true and
correct (considered for this purpose only, and not for purposes of determining
whether they are true and correct in the first instance, without regard to any
Company Material Adverse Effect, materiality or similar qualifications contained
therein) which, individually or in the aggregate, have not had and would not
have, a Company Material Adverse Effect, and Parent shall have received a
certificate signed on behalf of the Company by an executive officer of the
Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by an executive officer
of the Company to such effect.
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(c) CONSENTS UNDER AGREEMENTS. The Company shall have obtained the Company
Required Consents, except to the extent the failure to obtain any consent or
approval, individually or in the aggregate, would not have a Company Material
Adverse Effect.
(d) PUHCA APPROVAL. The SEC shall have issued an order or orders under the
PUHCA authorizing the Merger, the financing of the Merger and other matters
related thereto, which order or orders do not contain any terms or conditions
that (i) adversely affect in any material respect the financing or capital
raising activities of any subsidiary of Parent that qualifies as a "foreign
utility company" (as such term is defined under PUHCA), excluding for this
purpose any effects on such financing or capital raising activities that arise
from (A) Parent's obligation under such order or orders to maintain or achieve a
debt to equity ratio (on a consolidated basis) of not less than 70 percent to
30 percent (but not excluding any effects on such financing or capital raising
that arise from any order or orders imposing a lesser debt to equity ratio),
(B) investment limits applicable to Parent pursuant to Rule 58 under PUHCA,
(C) limitations on Parent's ability to provide guarantees, equity contributions
or other credit support to such "foreign utility companies" without the SEC's
prior approval under PUHCA, or (D) any financial or other commitments agreed to
by Parent in its application to register as a registered holding company or in
any other application under PUHCA associated with the Merger, or (ii) provide
for SEC jurisdiction under PUHCA with respect to any subsidiary of Parent that
qualifies as a "foreign utility company" (as such term is defined under PUHCA)
other than any exercise of such jurisdiction substantially similar to publicly
available actions of the SEC prior to the date hereof.
(e) MATERIAL ADVERSE EFFECT. There shall not have occurred any Company
Material Adverse Effect and there shall not exist any facts or circumstances
that, individually or in the aggregate, are reasonably likely to have a Company
Material Adverse Effect.
(f) COMPETITION COMMISSION. If the Merger, or any matter arising
therefrom, is a merger qualifying for investigation under the Fair Trading Act
1973 (as amended), either (A) it shall have been established that it is not the
intention of the Secretary of State for Trade and Industry to refer the Merger,
or any matter arising therefrom, to the Competition Commission, or (B) having
been referred to the Competition Commission, the Secretary of State for Trade
and Industry shall have indicated in writing that it is his intention to permit
the Merger and any matter arising therefrom to take place, and such indication
shall not be subject to any undertakings, assurances or any other terms or
conditions which would have, individually or in aggregate, a Parent Material
Adverse Effect.
(g) OFFICE OF GAS AND ELECTRICITY MARKETS. It shall have been established
that it is not the intention of the Office of Gas and Electricity Markets to
seek, in connection with the Merger or any matter arising therefrom, any:
(A) modification to any one or more of the licenses or appointments held by
Parent or any of its subsidiaries under any applicable statute, law, regulation,
order or determination which would have, individually or in the aggregate, a
Parent Material Adverse Effect; and/or (B) undertaking or assurance from any
Parent Company with respect to such licenses or appointments which would have,
individually or in the aggregate, a Parent Material Adverse Effect.
(h) EC APPROVAL. If the Merger, or any matter arising therefrom,
constitutes a concentration with a Community dimension within the scope of
Council Regulation (EEC) No. 4064/89 (as amended), the European Commission shall
have issued a decision under Article 6(1)(b) of the Regulation in relation to
the Merger, provided that any such decision shall not be subject to any
undertakings, assurances or any other terms or conditions which would have,
individually or in aggregate, a Parent Material Adverse Effect.
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7.3. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Parent, Merger Sub and US Subholdco 2 set forth in Section 5.2(a), 5.2(c),
5.2(f), 5.2(i) and 5.2(k) of this Agreement shall be true and correct in all
material respects (a) on the date hereof and (b) on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of the Closing Date (except for representations and warranties that
expressly speak only as of a specific date or time other than the date hereof or
the Closing Date, which need only be true and correct in all material respects
as of such date or time), and all other representations and warranties of Parent
and Merger Sub set forth in this Agreement shall be true and correct (i) on the
date hereof and (ii) on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date (except for representations and warranties that expressly speak
only as of a specific date or time other than the date hereof or the Closing
Date, which need only be true and correct in all material respects as of such
date or time) except in each of cases (i) and (ii) for such failures to be true
and correct (considered for this purpose only, and not for purposes of
determining whether they are true and correct in the first instance, without
regard to any Parent Material Adverse Effect, materiality or similar
qualifications contained therein) which, individually or in the aggregate, have
not had and would not have, a Parent Material Adverse Effect, and the Company
shall have received a certificate signed on behalf of Parent, Merger Sub and US
Subholdco 2 by an executive officer of Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUB. Each of Parent
and Merger Sub shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and the Company shall have received a certificate signed on behalf of
Parent by an executive officer of Parent to such effect.
(c) EMPLOYMENT AGREEMENT. Parent and/or Merger Sub shall have executed and
delivered an Employment Agreement in substantially the form attached as
Exhibit A.
(d) CONSENTS UNDER AGREEMENTS. Parent shall have obtained the Parent
Required Consents except to the extent the failure to obtain any consent or
approval, individually or in the aggregate, would not have a Parent Material
Adverse Effect.
ARTICLE VIII
TERMINATION
8.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by shareholders of the Company and Parent referred
to in Section 7.1(a), by mutual written consent of the Company and Parent by
action of their respective boards of directors.
8.2. TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the board of directors of either Parent or the Company (and
written notice to the other party) if (a) the Merger shall not have been
consummated by August 31, 2001, whether such date is before or after the date of
approval by the shareholders of the Company or Parent (the "TERMINATION DATE");
PROVIDED that the Termination Date shall be automatically extended for 6 months
(the "EXTENDED DATE") if, on August 31, 2001: (i) any of the Governmental
Consents described in Section 7.1(b), 7.2(d), 7.2(f), 7.2(g) or 7.2(h) have not
been obtained or waived, (ii) each of the other conditions to the consummation
of the Merger set forth in Article VII has been satisfied or waived or remains
capable of satisfaction, and (iii) any Governmental Consent that has not yet
been obtained is being pursued diligently and in good
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faith, (b) the approval of the Company's shareholders required by
Section 7.1(a) shall not have been obtained at a meeting duly convened therefor
or at any adjournment or postponement thereof, (c) the approval of Parent's
shareholders as required by Section 7.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment or postponement thereof, or
(d) (i) any Order permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable (whether before
or after the approval by the shareholders of the Company or Parent), or
(ii) any Law is in effect or is adopted or issued, which has the effect of
prohibiting the Merger; PROVIDED that the right to terminate this Agreement
pursuant to clause (a) above shall not be available to any party that has
breached in any material respect its obligations under this Agreement in any
manner that shall have been the cause of or resulted in the failure of the
Merger to be consummated.
8.3. TERMINATION BY THE COMPANY. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by shareholders of the Company referred to in
Section 7.1(a), by action of the board of directors of the Company and written
notice to Parent if: (a) the board of directors of Parent shall have withdrawn
or adversely modified its approval or recommendation of the Merger, (b) there
has been a material breach by Parent or Merger Sub of any representation,
warranty, covenant or agreement contained in this Agreement that is not curable
and such breach would give rise to a failure of the condition set forth in
Section 7.3(a) or Section 7.3(b), (c) in accordance with, and subject to the
terms and conditions of, Section 6.3(b), or (d) Parent shall fail to deliver or
cause to be delivered the amount of cash to the Paying Agent required pursuant
to Section 4.2(a) at a time when all conditions to Parent's obligation to close
have been satisfied or waived by Parent.
8.4. TERMINATION BY PARENT. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by the shareholders of Parent referred to in
Section 7.1(a), by action of the Board of Directors of Parent and written notice
to the Company if: (a) the board of directors of the Company shall have
withdrawn or adversely modified its adoption or recommendation of this Agreement
or shall have approved or recommended a Superior Proposal, or (b) there has been
a material breach by the Company of any representation, warranty, covenant or
agreement contained in this Agreement that is not curable and such breach would
give rise to a failure of the condition set forth in Section 7.2(a) or
Section 7.2(b) or (c) Shares or other securities or assets are issued or
delivered pursuant to the terms of the Rights Agreement upon or following the
occurrence of a Distribution Date, a Stock Acquisition Date or a Triggering
Event (each as defined in the Rights Agreement) or an Acquiring Person (as
defined in the Rights Agreement) becoming such.
8.5. EFFECT OF TERMINATION AND ABANDONMENT. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, this Agreement (other than as set forth in Section 9.1) shall
become void and of no effect with no liability on the part of any party hereto
(or of any of its directors, officers, employees, agents, legal and financial
advisors or other representatives); PROVIDED, HOWEVER, that no such termination
shall relieve any party hereto of any liability or damages resulting from any
willful and material breach of this Agreement occurring prior to such
termination. The parties agree that the agreements contained in this
Section 8.5 constitute liquidated damages and not a penalty. The parties further
agree that if any party is or becomes obligated to pay a termination fee
pursuant to Section 8.5(b) or Section 8.5(c), the right to receive such
termination fee shall be the sole remedy for damages of the other party with
respect to the facts and circumstances giving rise to such payment obligation
except for any willful and material breach of this Agreement. No party may
assert a claim for damages for any inaccuracy of any representation or warranty
contained in this Agreement (whether by direct claim or counterclaim) except in
connection with the termination of this Agreement. This Agreement shall not be
deemed willfully and materially breached by Parent or Merger Sub with regard to
any failure to deliver to the Paying Agent funds
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pursuant to Section 4.2(a) so long as the covenant in Section 6.15 is not
willfully and materially breached.
(b) In the event that (i) this Agreement is terminated by Parent pursuant to
Section 8.4(a) or 8.4(c), or (ii) this Agreement is terminated by the Company
pursuant to Section 8.3(c), then the Company shall, promptly, but in no event
later than two business days after the date of such termination, pay Parent a
termination fee of $90,000,000 and shall promptly, but in no event later than
two business days after being notified of the amount of all documented
out-of-pocket charges and expenses ("OUT-OF-POCKET EXPENSES") by Parent, pay all
of the Out-of-Pocket Expenses incurred by Parent or Merger Sub in connection
with this Agreement and the transactions contemplated by this Agreement up to a
maximum amount of $10,000,000, in each case payable by wire transfer of same day
funds. In the event that (i) this Agreement is terminated by Parent or the
Company pursuant to Section 8.2(b) or (ii) this Agreement is terminated by
Parent pursuant to 8.4(b), then (A) the Company shall promptly, but in no event
later than two business days after being notified of the Out-of-Pocket Expenses
by Parent, pay all of the Out-of-Pocket Expenses incurred by Parent or Merger
Sub in connection with this Agreement and the transactions contemplated by this
Agreement up to a maximum amount of $10,000,000, payable by wire transfer of
same day funds (but only if, in the case of clause (i), the Parent Requisite
Vote shall have been received) and (B) if, a bona fide Acquisition Proposal
shall have, in the case of clause (i), become public prior to the date of the
Shareholders Meeting or, in the case of clause (ii), been made to the Company or
become public prior to the date of termination, and within 18 months from the
date of termination, the Company executes and delivers an agreement with respect
to any Acquisition Proposal or an Acquisition Proposal is consummated (it being
understood that in the event the board of directors of the Company recommends
the acceptance by the shareholders of the Company of a third-party tender offer
or exchange offer for the Shares, such recommendation shall be treated as though
an agreement had been executed), the Company shall promptly, but in no event
later than two business days after the date of such execution and delivery, or
consummation, as the case may be, pay Parent a termination fee of $90,000,000.
The Company acknowledges that the agreements contained in this Section 8.5(b)
are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, Parent and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 8.5(b), and, in order to obtain such payment, Parent or
Merger Sub commences a suit which results in a judgment against the Company for
the fee set forth in this paragraph (b), the Company shall pay to Parent or
Merger Sub its costs and expenses (including attorneys' fees) in connection with
such suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made.
(c) In the event that this Agreement is terminated by the Company pursuant
to Section 8.3(a) or 8.3(d), then Parent shall, promptly, but in no event later
than two business days after the date of such termination, pay the Company a
termination fee of $90,000,000 and shall promptly, but in no event later than
two business days after being notified of the Out-of-Pocket Expenses by the
Company, pay all of the Out-of-Pocket Expenses incurred by the Company in
connection with this Agreement and the transactions contemplated by this
Agreement up to a maximum amount of $10,000,000, in each case payable by wire
transfer of same day funds. In the event that (i) this Agreement is terminated
by Parent or the Company pursuant to Section 8.2(c) or (ii) this Agreement is
terminated by the Company pursuant to Section 8.3(b), then (A) Parent shall
promptly, but in no event later than two business days after being notified of
the Out-of-Pocket Expenses by the Company, pay all of the Out-of-Pocket Expenses
incurred by the Company in connection with this Agreement and the transactions
contemplated by this Agreement up to a maximum amount of $10,000,000, payable by
wire transfer of same day funds (but only if, in the case of clause (i), the
Company Requisite Vote shall have been received) and (B) if, a bona fide Parent
Acquisition Proposal (as defined below) shall have, in the case of clause (i),
become public prior to the date of the Parent Stockholders Meeting or, in the
case of
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clause (ii), been made to Parent or become public prior to the date of
termination, and within 18 months from the date of termination, Parent executes
and delivers an agreement with respect to a merger, reorganization, share
exchange, consolidation or similar transaction involving, or any purchase of all
or any substantial portion of the assets or equity securities of, Parent or any
of its Subsidiaries (a "PARENT ACQUISITION PROPOSAL") or a Parent Acquisition
Proposal is consummated (it being understood that in the event the board of
directors of Parent recommends the acceptance by the shareholders of Parent of a
third-party tender offer or exchange offer for Parent Ordinary Shares, such
recommendation shall be treated as though an agreement had been executed),
Parent shall promptly, but in no event later than two business days after the
date of such execution and delivery, or consummation, as the case may be, pay
the Company a termination fee of $90,000,000. Parent acknowledges that the
agreements contained in this Section 8.5(c) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
the Company would not enter into this Agreement; accordingly, if Parent fails to
promptly pay the amount due pursuant to this Section 8.5(c), and, in order to
obtain such payment, the Company commences a suit which results in a judgment
against Parent for the fee set forth in this paragraph (c), Parent shall pay to
the Company its costs and expenses (including attorneys' fees) in connection
with such suit, together with interest on the amount of the fee at the prime
rate of Citibank N.A. in effect on the date such payment was required to be
made.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. SURVIVAL. This Article IX and the agreements of the Company, Parent
and Merger Sub contained in Article IV, Sections 6.8 (Stock Exchange
De-listing), 6.11 (Benefits), 6.12 (Expenses), 6.13 (Indemnification; Directors'
and Officers' Insurance) and 6.19 (Post Merger Operations) shall survive the
consummation of the Merger. This Article IX, the agreements of the Company,
Parent and Merger Sub contained in Section 6.12 (Expenses), Section 8.5 (Effect
of Termination and Abandonment) and the Confidentiality Agreement (as defined in
Section 9.7) shall survive the termination of this Agreement. All other
representations, warranties, covenants and agreements in this Agreement shall
not survive the consummation of the Merger or the termination of this Agreement.
9.2. MODIFICATION OR AMENDMENT. Subject to the provisions of applicable
law, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
9.3. WAIVER OF CONDITIONS. At any time prior to the Effective Time, the
parties hereto may extend the time for the performance of any of the obligations
or other acts of the other parties hereto or waive any inaccuracies in any of
the representations and warranties contained herein or in any document delivered
pursuant hereto. The conditions to each of the parties' obligations to
consummate the Merger are for the sole benefit of such party and may be waived
by such party in whole or in part to the extent permitted by applicable law. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
9.4. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; ENFORCEMENT; WAIVER OF JURY TRIAL. (A) THIS
AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF KENTUCKY WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES
THEREOF. The parties agree that irreparable damage
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would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the Commonwealth of Kentucky, this being in addition to any other
remedy to which they are entitled at law or in equity. The parties hereby
irrevocably submit to the exclusive jurisdiction of the Federal courts of the
United States of America located in the Commonwealth of Kentucky solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement, and in respect of
the transactions contemplated hereby, and hereby waive, and agree not to assert,
as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts, and the
parties hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a Kentucky Federal court. The
parties hereby consent to and grant any such court exclusive jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 9.6 or in such other manner as may
be permitted by law shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES (i) ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND (ii) EXCEPT WITH RESPECT
TO SECTION 8.5, WHICH SHALL NOT BE LIMITED IN ANY WAY, ANY RIGHT IT MAY HAVE TO
RECEIVE DAMAGES FROM ANY OTHER PARTY BASED ON ANY THEORY OF LIABILITY FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL (INCLUDING LOST PROFITS) OR PUNITIVE DAMAGES.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH ACTION, SUIT OR PROCEEDING, SEEK TO
ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
9.6. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail (return receipt requested),
postage prepaid, or sent by reputable overnight courier service or by facsimile
(which is confirmed):
IF TO PARENT, US SUBHOLDCO 2 OR MERGER SUB
PowerGen plc,
53 New Broad Street,
London, EC2M 15L
England.
Attention: David J. Jackson, General Counsel and Company Secretary
fax: +1 44 207 826 2716
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(with a copy to Joseph B. Frumkin, Esq.,
Sullivan & Cromwell,
125 Broad Street, New York, NY 10004
fax: (212) 558-3588).
IF TO THE COMPANY
LG&E Energy Corp.,
220 West Main Street,
Louisville, KY 40202.
Attention: John R. McCall, Executive Vice President,
General Counsel and Corporate Secretary.
fax: (502) 627-4622.
(with a copy to Richard I. Beattie, Esq. and Caroline B. Gottschalk,
Esq.,
Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, NY 10017
fax: (212) 455-2502
and
to Peter D. Clarke, Esq.
Gardner, Carton & Douglas,
Quaker Tower,
321 North Clark Street, Suite 3400,
Chicago, Illinois 60610-4795
fax: (312) 644-3381).
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. ENTIRE AGREEMENT. This Agreement (including any exhibits or
appendices hereto), the Company Disclosure Letter, the Parent Disclosure Letter
and the Confidentiality Agreement, dated November 1, 1999, between Parent and
the Company (the "CONFIDENTIALITY AGREEMENT") constitute the entire agreement,
and supersede all other prior agreements, understandings, representations and
warranties, both written and oral, among the parties, with respect to the
subject matter hereof.
9.8. NO THIRD PARTY BENEFICIARIES. Except as provided in Section 6.13
(Indemnification; Directors' and Officers' Insurance), this Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
9.9. OBLIGATIONS OF PARENT AND OF THE COMPANY. Whenever this Agreement
requires a subsidiary of Parent to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause such subsidiary
to take such action. Whenever this Agreement requires a subsidiary of the
Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such subsidiary to take such action.
9.10. TRANSFER TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including penalties and interest)
incurred in connection with the Merger shall be paid by Parent and Merger Sub
when due, and Parent and Merger Sub will indemnify the Company against liability
for any such taxes.
9.11. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
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circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
9.12. INTERPRETATION. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Unless the context otherwise requires, the use of the singular
shall include the plural, the use of the masculine shall include the feminine,
and vice versa. As used in this Agreement, the antecedent of any personal
pronoun shall be deemed to be only the next preceding proper noun or nouns, as
appropriate for such pronoun. As used in this Agreement, any reference to any
law, rule or regulation shall be deemed to include a reference to any
amendments, revisions or successor provisions to such law, rule or regulation.
9.13. ASSIGNMENT. This Agreement shall not be assignable by operation of
law or otherwise; PROVIDED, HOWEVER, that Parent may designate, by written
notice to the Company, another wholly owned direct or indirect subsidiary to be
a Constituent Corporation in lieu of Merger Sub so long as such designation
would not reasonably be expected to (i) impose any material delay in the
obtaining of, or significantly increase the risk of not obtaining any
authorizations, consents, orders, declarations or approvals of any Governmental
Entity necessary to consummate the Merger or the expiration or termination of
any applicable waiting period, (ii) significantly increase the risk of any
Governmental Entity entering an order prohibiting the consummation of the
Merger, (iii) significantly increase the risk of not being able to remove any
such order on appeal or otherwise or (iv) materially delay the consummation of
the Merger. If the requirements of the previous sentence are met and Parent
wishes to designate another wholly owned direct or indirect subsidiary to be a
Constituent Corporation in lieu of Merger Sub, then, all references herein to
Merger Sub shall be deemed references to such other subsidiary, except that all
representations and warranties made herein with respect to Merger Sub as of the
date of this Agreement shall be deemed representations and warranties made with
respect to such other subsidiary as of the date of such designation. Subject to
this Section 9.13, this Agreement shall be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
9.14. SUCCESSORS. In the event that (a) any scheme of arrangement pursuant
to Section 425 of the Companies Act between Parent and the holders of the Parent
Ordinary Shares becomes effective as a result of which the Parent Ordinary
Shares cease to be listed on the LSE, or (b) Parent or any of its successors or
assigns transfers all or substantially all of its properties and assets to any
Person (including pursuant to Section 110 of the United Kingdom Insolvency Act
1986), then and in either such case, proper provision shall be made so that the
successors and assigns of Parent (including the ultimate parent entity thereof)
shall assume the obligations set forth in this Agreement, including
Section 6.19.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
<TABLE>
<S> <C> <C>
LG&E ENERGY CORP.
By: /s/ ROGER W. HALE
-----------------------------------------
Name: Roger W. Hale
Title: Chairman and Chief Executive
POWERGEN PLC
By: /s/ E.A. WALLIS
-----------------------------------------
Name: E.A. Wallis
Title: Chairman and Chief Executive
Accepted and Agreed as of:
US SUBHOLDCO 2
By:
-----------------------------------------
Name:
Title:
MERGER SUB
By:
-----------------------------------------
Name:
Title:
</TABLE>
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<PAGE>
EXHIBIT A
EMPLOYMENT AGREEMENT
AGREEMENT, made February 25, 2000, by and between LG&E Energy Corporation, a
Kentucky corporation (the "Company"), Powergen plc, a United Kingdom public
limited company ("Parent"), and Roger W. Hale ("Executive").
RECITALS
WHEREAS, Parent, Company, a Delaware corporation to be formed as an indirect
wholly owned subsidiary of Parent ("US Subholdco 2") and a Kentucky corporation
to be formed as a direct wholly owned subsidiary of US Subholdco 2 ("Merger
Sub"), have executed a merger agreement (the "Merger Agreement") which will
become effective at the Effective Time (as defined in the Merger Agreement);
WHEREAS, in order to induce Executive to serve, on and after the Effective
Time, as the Chairman and Chief Executive Officer of the Company and as a member
of the Boards of Directors of Parent and of the Company, the Company and Parent
desire to provide Executive with compensation and other benefits on the terms
and conditions set forth in this Agreement; and
WHEREAS, Executive is willing to accept such employment and perform services
for Parent and the Company, on the terms and conditions hereinafter set forth;
NOW THEREFORE, it is hereby agreed by and between the parties as follows:
1. EFFECTIVENESS; EFFECT ON PRIOR AGREEMENTS. This Agreement shall become
effective at the Effective Time, provided the Executive is employed by the
Company on that date. As of the Effective Time, the Change in Control Agreement
dated January 5, 1998 (the "CIC Agreement") and the Employment Agreement dated
May 20, 1997 (the "Employment Agreement") shall terminate and become null and
void. In consideration of the services rendered by the Executive to the Company
prior to the Effective Time, the Executive's willingness to enter into this
Agreement, and the satisfaction of all of the Company's and Parent's obligations
under the CIC Agreement and the Employment Agreement, Company shall pay the
Executive in cash a lump sum payment of the amount payable under Section 3.1(b)
of the CIC Agreement at the Effective Time and all other amounts otherwise due
and payable, either as of the date the merger is approved by a majority of the
shareholders of the Company or as of the Effective Time, pursuant to any and all
arrangements, plans or programs of the Company.
2. EMPLOYMENT.
2.1 Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the term hereof as its Chairman and Chief
Executive Officer. Executive shall report directly to the Chief Executive
Officer of Parent (the "Parent CEO").
2.2 Subject to the terms and conditions of this Agreement, Executive hereby
accepts employment as the Chairman and Chief Executive Officer of the Company
commencing at the Effective Time, and agrees to devote his full working time and
efforts to the performance of services, duties and responsibilities in
connection therewith. Executive shall perform such duties and exercise such
powers, commensurate with his position, as the Chairman and Chief Executive
Officer of the Company, as the Parent CEO shall from time to time delegate to
him on such terms and conditions and subject to such restrictions as the Parent
CEO may reasonably from time to time impose. In addition, Parent shall
(i) cause the Executive to be elected as a member of the Board of Directors of
the Company (the "Board") and (ii) use its best efforts to secure Executive's
election as a member of the Board of Directors of Parent (the "Parent Board")
for an initial three year term, and Executive agrees to serve in such
capacities.
<PAGE>
2.3 Nothing in this Agreement shall preclude Executive from (a) engaging in
charitable and community affairs so long as, in the reasonable determination of
the Parent CEO, such activities do not materially interfere with his duties and
responsibilities hereunder, (b) managing any passive investment made by him in
publicly traded equity securities or other property (provided that no such
investment may exceed 5% of the equity of any entity, without the prior approval
of the Parent CEO), (c) continuing to serve as a member of the boards of
directors of any corporation, association, professional or charitable
organization or other entity on which he serves as of the date hereof or
(d) serving, subject to the prior approval of the Parent CEO which approval
shall not be unreasonably withheld, as a member of boards of directors or as a
trustee of any other corporation, association or entity.
2.4 The Executive will perform his services at the Company's headquarters
in Louisville, Kentucky, with the understanding that he shall be required to
travel to the United Kingdom as necessary to attend meetings of the Parent Board
and as reasonably required for the performance of his duties under this
Agreement.
3. TERM OF EMPLOYMENT. Executive's term of employment under this Agreement
shall commence at the Effective Time and, subject to the terms hereof, shall
terminate on the earlier of (i) the third anniversary of the Closing Date (the
"Termination Date") or (ii) termination of Executive's employment pursuant to
this Agreement; PROVIDED, HOWEVER, that any termination of employment by
Executive (other than for death, Permanent Disability or Good Reason) may only
be made upon 90 days' prior written notice to the Company and Parent and any
termination of employment by Executive for Good Reason may only be made upon
15 days' prior written notice to the Parent. Any termination of Executive's
employment by the Parent shall be made by delivery to Executive of a copy of a
resolution duly adopted by a majority vote of the entire Parent Board at a
meeting of the Parent Board called and held for the purpose (after 30 days'
prior written notice to Executive and reasonable opportunity for Executive to be
heard before the Parent Board prior to such vote), (i) if the termination is for
Cause (as defined in Section 7.4), after a reasonable opportunity for Executive
to resolve or otherwise cure the behavior in question, finding that, in the
reasonable judgment of such Parent Board, Executive was guilty of conduct
constituting Cause and specifying the particulars thereof, or (ii) if the
termination is without Cause, terminating Executive's employment.
4. COMPENSATION.
4.1 SALARY. The Company shall pay Executive a base salary ("Base Salary")
of not less than the rate in effect immediately prior to the Effective Time. The
Base Salary shall be payable in accordance with the ordinary payroll practices
of the Company. The Base Salary shall be reviewed by the Compensation Committee
of the Parent Board (the "Compensation Committee") as of July 1 of each year
during the term of this Agreement and may be increased in the discretion of the
Compensation Committee and, as so increased, shall constitute "Base Salary"
hereunder. At no time shall the Compensation Committee be able to decrease the
Base Salary.
4.2 ANNUAL BONUS. In addition to his Base Salary, Executive shall be
eligible to participate in any annual incentive plan or program maintained by
the Company that is comparable to the Company Short Term Incentive Plan as in
effect as of the date hereof (the "Bonus Plan"). Such participation shall be on
terms commensurate with Executive's position and level of responsibility. At no
time shall the Executive's target bonus under the Bonus Plan be less than 70% of
the Base Salary. Except as set forth in the preceding sentence, nothing in this
Section 4.2 will guarantee to the Executive any specific amount of incentive
compensation, or prevent the Compensation Committee from establishing reasonable
financial performance goals and compensation targets applicable only to the
Executive.
4.3 COMPENSATION PLANS AND PROGRAMS. Executive shall be eligible to
participate in any compensation plan or program maintained by the Company in
which other senior executives of the Company participate on terms commensurate
with his position and level of responsibility, and to
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<PAGE>
receive equity-based incentive awards based upon achievement of performance
goals based partially upon Parent's and partially on the Company's performance
in accordance with the general terms of the long-term incentive plan contained
on Exhibit A. The Parent and the Company acknowledge that, as of the date
hereof, the current value of the Executive's long-term incentive plan
participation is 175% of Base Salary.
4.4 RESTRICTED STOCK. Immediately prior to the Effective Time, each of the
Executive's outstanding Restricted Stock shall be converted into a right to
receive the Merger Consideration (as such term is defined in the Merger
Agreement) in accordance with Section 4.1(a) of the Merger Agreement; PROVIDED,
HOWEVER, that the Restricted Stock shall not vest and the restrictions thereon
shall not lapse on and until the first day immediately following the Effective
Time, and the Merger Consideration shall thereafter be paid to the Executive at
the same time and on the same terms as provided in Section 4.2 of the Merger
Agreement. For purposes hereof, "Restricted Stock" shall mean the shares of
common stock of the Company granted to the Executive pursuant to the Restricted
Stock Grant Agreements by and between the Executive and the Company, dated
March 26, 1999 and December 9, 1999.
4.5 OTHER COMPENSATION. Nothing in this Section 4 will preclude the
Compensation Committee from authorizing such additional compensation to the
Executive, in cash or in property, as the Compensation Committee may determine
in its sole discretion to be appropriate.
5. EMPLOYEE BENEFITS.
5.1 EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES. The Company shall
provide Executive during the term of his employment hereunder with coverage
under all employee pension and welfare benefit programs, plans and practices
including, but not limited to, those specified in Exhibit B attached hereto
(commensurate with his positions and level of responsibility in the Company and
to the extent permitted under any employee benefit plan) in accordance with the
terms thereof, which the Company makes available to its senior executives;
PROVIDED, HOWEVER, that the amount of Executive's term life insurance (the "Life
Insurance") shall be not less than $2,000,000, the premiums for such insurance
shall be paid by the Company until Executive reaches age 75 regardless of
Executive's employment status, and the amount of any long-term disability
coverage shall be no less favorable than what Executive received from the
Company immediately prior to the Effective Time. The Company shall also pay
Executive an additional payment such that, after payment by Executive of all
taxes imposed as a result of the life insurance benefit, the Executive retains
an amount equal to the taxes imposed upon the Executive as a result of the life
insurance benefit.
5.2 VACATION AND FRINGE BENEFITS. Executive shall be eligible to
participate in the Company's vacation plan, PROVIDED, HOWEVER, that in no event
shall Executive receive fewer vacation days than Executive is entitled to
receive under the Company's vacation policy as in effect immediately prior to
the Effective Time. In addition, Executive shall be entitled to the perquisites
and other fringe benefits made available to senior executives of the Company,
commensurate with his position and level of responsibility with the Company.
Executive shall also receive the additional perquisites listed on Exhibit C
hereto.
5.3 RETIREMENT BENEFITS.
(a) PENSION BENEFITS. Upon termination of the Executive's employment
for any reason at any time, the Company shall provide the Executive with a
pension benefit as set forth below. The benefit, to be paid by the Company
to the Executive in the form of an annuity payable monthly on
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the first of each month, beginning on the first day of the month following
the month in which the Executive's employment terminates, shall be equal to
the following:
(i) if the Executive's employment terminates at any time prior to the
first anniversary of the Effective Time, an annual benefit equal to 50% of
the sum of Executive's then current Base Salary and annual target bonus;
(ii) if the Executive's employment terminates at any time prior to the
second anniversary of the Effective Time, but following the first
anniversary of the Effective Time, an annual benefit equal to 55% of the sum
of Executive's then current Base Salary and annual target bonus;
(iii) if the Executive's employment terminates at any time prior to the
third anniversary of the Effective Time, but following the second
anniversary of the Effective Time, an annual benefit equal to 60% of the sum
of Executive's then current Base Salary and annual target bonus.
The benefit provided to the Executive hereunder shall be guaranteed by the
Company, the Parent, Kentucky Utilities Company, Louisville Gas and Electric
Company, and their successors and assigns, jointly and severally.
Upon the Executive's death at any time during the term of this Agreement or
thereafter, his spouse will be entitled to receive 50% of the benefit the
Executive would have been eligible to receive at such date pursuant to this
Section 5.3 above, with no actuarial discounts (plus all other benefits to which
she may be entitled under the terms of any of the other benefit plans of the
Company providing benefits to the Executive).
6. EXPENSES. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of appropriately itemized and
approved (consistent with the Company's policy) accounts of such expenditures.
7. TERMINATION OF EMPLOYMENT.
7.1 TERMINATION NOT FOR CAUSE OR FOR GOOD REASON. (a) The Company may
terminate Executive's employment at any time for any reason, in accordance with
the procedures set forth in Section 3 hereof. If Executive's employment is
terminated by the Company other than for Cause (as defined in Section 7.4
hereof) and other than as a result of Executive's Permanent Disability (as
defined in Section 7.2 hereof) or if Executive terminates his employment for
Good Reason (as defined in Section 7.1(c) hereof) prior to the Termination Date,
Executive shall receive such payments, if any, under applicable plans or
programs, including but not limited to those referred to in Section 4.3 and
Section 5.3 hereof, to which he is entitled pursuant to the terms of such plans
or programs. In addition, Executive shall be entitled to:
(i) a payment (the "Termination Payment") equal to the sum of his Base
Salary and target annual bonus pursuant to the Bonus Plan (as provided
pursuant to Section 4.2 hereof) for a period (the "Continuation Period")
equal to the greater of (A) the remainder of the term of this Agreement and
(B) 24 months;
(ii) a cash lump sum payment in respect of accrued but unused vacation
days (the "Vacation Payment") and to compensation earned but not yet paid
(including any bonus payments pursuant to the Bonus Plan)(the "Compensation
Payment");
(iii) continued coverage during the Continuation Period under any
employee medical and life insurance plans of the Company or Parent in
accordance with the respective terms thereof;
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(iv) the target bonus under the Bonus Plan in respect of the fiscal year
in which his termination occurs, prorated by a fraction, the numerator or
which is the number of days of the fiscal year until his termination and the
denominator of which is 365;
(v) a cash lump sum payment equal to the sum of (x) any long-term
incentive award granted to Executive at the target level, prorated for
Executive's actual period of service (the "LTIP Payment") plus (y) an amount
equal to the target long-term incentive award in respect of the Continuation
Period;
(vi) the perquisites and benefits provided in Section 5.2 during the
Continuation Period; PROVIDED, HOWEVER, that in the case of a qualified
defined benefit retirement plan, the value of the additional benefit
Executive would have accrued if he had been credited for all purposes with
the additional years of service under such plan will be paid in a lump sum
in cash (the "Qualified Plan Payment"); and
(vii) all then outstanding stock options shall become exercisable and
all restrictions pertaining to restricted stock or other equity awards shall
lapse.
(b) The Vacation Payment, the Compensation Payment, the Qualified Plan
Payment, the Termination Payment and any other payments due Executive
pursuant to Section 7(a) shall be paid by the Company to Executive within
20 days after the termination of Executive's employment by check payable to
the order of Executive or by wire transfer to an account specified by
Executive.
(c) For purposes of this Agreement, "Good Reason" shall mean any of the
following (without Executive's consent, and other than in connection with a
termination of employment by reason of Executive's death or Permanent
Disability:
(i) any material breach by the Parent or Company of any provision of
this Agreement, that is not corrected within 30 days after written notice
of such breach;
(ii) the failure to assume this Agreement by any successor to the
Company;
(iii) the failure to appoint Executive to, or the removal of the
Executive from either the position of Chairman or of Chief Executive
Officer of the Company;
(iv) the failure to elect Executive to, or the removal of the
Executive from, the board of directors of the Company or of the Parent
Board;
(v) any material reduction in the Executive's duties or
responsibilities that the Executive deems significant as contemplated by
this Agreement following the Effective Time without the Executive's
consent; or
(vi) the assignment to the Executive of duties that are inconsistent
with his duties and responsibilities as in effect immediately prior to
such new assignment.
7.2 PERMANENT DISABILITY. If the Executive becomes totally and permanently
disabled (as defined in the Company's Long-Term Disability Benefit Plan
applicable to senior executive officers as in effect at the time Executive's
disability is incurred) ("Permanent Disability"), the Parent or Executive may
terminate Executive's employment on written notice thereof, and Executive shall,
in addition to the benefits provided pursuant to Section 5.3, receive or
commence receiving:
(a) 22 weeks after Executive has incurred a Permanent Disability, a
benefit equal to: (i) 60 percent of the Base Salary, less (ii) 100% of the
Social Security disability benefit and (iii) any amounts payable pursuant to
the terms of a disability insurance policy or similar arrangement which the
Company maintains during the term hereof; where such benefit shall continue
until the Executive attains age 65;
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(b) as soon as practicable, the target bonus under the Bonus Plan in
respect of the fiscal year in which his termination occurs, prorated by a
fraction, the numerator of which is the number of days of the fiscal year
until termination and the denominator of which is 365;
(c) as soon as practicable, the Vacation Payment, the Compensation
Payment and the LTIP Payment; and
(d) as soon as practicable, such payments under applicable plans or
programs, including but not limited to those referred to in Section 4.3
hereof, to which he is entitled pursuant to the terms of such plans or
programs.
In addition, after Executive has incurred a Permanent Disability, he shall
continue to receive the Life Insurance and shall be entitled to a payment (the
"Disability Payment"), as soon as practicable, equal to his target annual bonus
pursuant to the Bonus Plan as provided in Section 4.2 of this Agreement, for, at
Executive's option, either (i) two years, or (ii) the remainder of the term then
in effect, discounted to present value (using the IRS applicable federal rate in
effect under section 1274(d) of the Internal Revenue Code of 1986, as amended
(the "Code"), at the time of termination). In addition, in the case of a
qualified defined benefit retirement plan, the present value, discounted in the
same manner as the Disability Payment, of the additional benefit Executive would
have accrued if he had been credited for all purposes with the additional years
of service under such plan will be paid in a lump sum in cash as soon as
practicable following Executive's Permanent Disability. In addition, all of
Executive's then outstanding stock options shall become exercisable and all
restrictions pertaining to restricted stock or other equity awards shall lapse.
7.3 DEATH. In the event of Executive's death during the term of his
employment hereunder, Executive's estate or designated beneficiaries shall
receive or commence receiving, as soon as practicable:
(i) the target bonus under the Bonus Plan as provided pursuant to
Section 4.2 of this Agreement in respect of the fiscal year in which his
death occurs, prorated by a fraction, the numerator of which is the number
of days of the fiscal year until his death and the denominator of which is
365;
(ii) any death benefits provided under the employment benefit programs,
plans and practices referred to in Sections 4.3, 5.1 and 5.3, including the
Life Insurance, in accordance with their terms;
(iii) the Vacation Payment, the Compensation Payment and the LTIP
Payment; and
(iv) such payments under applicable plans or programs, including but not
limited to those referred to in Section 4.3 hereof, to which Executive's
estate or designated beneficiaries are entitled pursuant to the terms of
such plans or programs.
In addition, all of Executive's then outstanding stock options shall become
exercisable and all restrictions pertaining to restricted stock or other equity
awards shall lapse.
7.4 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON; DISCHARGE FOR CAUSE. (a)
The Parent shall have the right to terminate the employment of Executive for
Cause. In the event that Executive's employment is terminated by the Parent for
Cause, as hereinafter defined, or by Executive other than for Good Reason and
other than as a result of the Executive's Permanent Disability or death, prior
to the Termination Date, Executive shall be entitled to receive the Compensation
Payment and the Vacation Payment.
(b) After the termination of Executive's employment under this
Section 7.4, the obligations of the Company under this Agreement to make any
further payments, or provide any benefits specified in this Agreement (other
than the Life Insurance, the benefits provided in Section 5.3 or
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the benefits provided in this Section 7.4) to Executive shall thereupon
cease and terminate and Executive's rights to any payments or benefits under
any Company plans or programs shall be determined pursuant to the terms of
such plans or programs; PROVIDED, HOWEVER, that except in the event that
Executive's employment is terminated by the Parent for Cause, the amounts
payable to Executive under the Bonus Plan referred to in Section 4.2 and
under the long-term compensation plans or programs referred to in
Section 4.3 in respect of the fiscal year or performance cycles, as the case
may be, in which his termination occurs, shall not be less than the target
bonus or target award for such fiscal year or performance cycles, prorated
by the number of days in the fiscal year or each performance cycle until
termination.
(c) As used herein, the term "Cause" shall be limited to
(i) Executive's conviction by a court of competent jurisdiction for the
commission of a felony (other than derivative of an environmental violation)
or (ii) Executive's willful and continuous failure, other than by reason of
Permanent Disability or death, to perform assigned duties.
7.5 CERTAIN ADDITIONAL PAYMENTS.
(a)(i) If it is determined (as hereafter provided) that any payment or
distribution by the Company, the Parent or any of their affiliates to or for
the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise pursuant
to or by reason of any other agreement, policy, plan, program or
arrangement, including without limitation any stock option, stock
appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of
the Code or any successor provision thereto) by reason of being "contingent
on a change in ownership or control" of the Company, within the meaning of
Section 280G of the Code (or any successor provision thereto) or to any
similar tax imposed by state or local law, or any interest or penalties with
respect to such excise tax (such tax or taxes, together with any such
interest and penalties, are hereafter collectively to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment or
payments (a "Gross-Up Payment") in an amount such that, after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
(ii) Subject to the provisions of Section 7.5(a)(i) hereof, all
determinations required to be made under this Section 7.5, including whether
an Excise Tax is payable by the Executive and the amount of such Excise Tax
and whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by the nationally recognized firm of certified public
accountants the ("Accounting Firm") used by the Company prior to the Change
in Control (or, if such Accounting Firm declines to serve, the Accounting
Firm shall be a nationally recognized firm of certified public accountants
selected by the Executive). The Accounting Firm shall be directed by the
Company or the Executive to submit its preliminary determination and
detailed supporting calculations to both the Company and the Executive
within 15 calendar days after the date of termination of employment, if
applicable, and any other such time or times as may be requested by the
Company or the Executive. If the Accounting Firm determines that an Excise
Tax is payable, the Company shall pay the required Gross-Up Payment to, or
for the benefit of, the Executive within five business days afer receipt of
such determination and calculations. If the Accounting Firm determines that
no Excise Tax is payable by the Executive, it shall, at the same time as it
makes such a determination, furnish the Executive with an opinion that he
has substantial authority not to report any Excise Tax on his/her federal,
state, local income or other tax return. Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the
Company and the Executive absent a contrary determination by the Internal
Revenue Service or a court of competent jurisdiction; PROVIDED, HOWEVER,
that no such
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determination shall eliminate or reduce the Company's obligation to provide
any Gross-Up Payment that shall be due as a result of such contrary
determination. As a result of the uncertainty in the application of
Section 4999 of the Code (or any successor provision thereto) and the
possibility of similar uncertainty regarding state or local tax law at the
time of any determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments that will not have been made by the Company should
have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts or
fails to pursue its remedies pursuant to Section 7.5(a) hereof and the
Executive thereafter is required to make a payment of any Excise Tax, the
Executive shall direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination and detailed
supporting calculations to both the Company and the Executive as promptly as
possible. Any such Underpayment shall be promptly paid by the Company to, or
for the benefit of, the Executive within five business days after receipt of
such determination and calculations.
(iii) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the
Accounting Firm in connection with the preparation and issuance of the
determination contemplated by Section 7.5(a) hereof.
(iv) The federal, state and local income or other tax returns filed by
the Executive (or any filing made by a consolidated tax group which includes
the Company) shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with the amount of any Excise Tax
payable to the Executive. The Executive shall make proper payment of the
amount of any Excise Tax, and at the request of the Company, provide to the
Company true and correct copies (with any amendments) of his/her federal
income tax return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed with the
applicable taxing authority, and such other documents reasonably requested
by the Company, evidencing such payment. If prior to the filing of the
Executive's federal income tax return, or corresponding state or local tax
return, if relevant, the Accounting Firm determines that the amount of the
Gross-Up Payment should be reduced, the Executive shall within five business
days pay to the Company the amount of such reduction.
(v) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Sections
7.5(a)(ii) and (iv) hereof shall be borne by the Company. If such fees and
expenses are initially advanced by the Executive, the Company shall
reimburse the Executive the full amount of such fees and expenses within
five business days after receipt from the Executive of a statement thereof
and reasonable evidence of his/her payment thereof.
(b) In the event that the Internal Revenue Service claims that any
payment or benefit received under this Agreement constitutes an "excess
parachute payment," within the Section 280(G)(b)(1) of the Code, the
Executive shall notify the Company in writing of such claim. Such
notification shall be given as soon as practicable but no later than 10
business days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay such claim
prior the expiration of the 30 day period following the date on which the
Executive gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If
the Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Executive shall
(i) give the Company any information reasonably requested by the Company
relating to such claim; (ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to
time, including without limitation, accepting legal representation with
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respect to such claim by an attorney reasonably selected by the Company and
reasonably satisfactory to the Executive; (iii) cooperate with the Company
in good faith in order to effectively contest such claim; and (iv) permit
the Company to participate in any proceedings relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs
and expenses (including, but not limited to, additional interest and
penalties an related legal, consulting or other similar fees) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for and against any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses.
(c) The Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in a permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; PROVIDED, HOWEVER, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis, and shall indemnify and hold the Executive harmless, on
an after-tax basis, from any Excise Tax or other tax (including interest and
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and PROVIDED,
FURTHER, that if the Executive is required to extend the statute of
limitations to enable the Company to contest such claim, the Executive may
limit this extension solely to such contested amount. The Company's control
of the contest shall be limited to issues with respect to which a corporate
deduction would be disallowed pursuant to Section 280G of the Code and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority. In addition, no position may be taken nor final resolution be
agreed to by the Company without the Executive's consent if such position or
resolution could reasonably be expected to adversely affect the Executive
(including any other tax position of the Executive unrelated to matters
covered hereby).
(d) If, after the receipt by the Executive of an amount advanced by the
Company in connection with the contest of the Excise Tax claim, the
Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto); PROVIDED, HOWEVER, if the amount of that refund exceeds the amount
advanced by the Company or it is otherwise determined for any reasons that
additional amounts could be paid to the Executive without incurring any
Excise Tax, any such amount will be promptly paid by the Company to the
Executive. If, after the receipt by the Executive of an amount advanced by
the Company in connection with an Excise Tax claim, a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent
to contest the denial of such refund prior to the expiration of 30 days
after such termination, such advance shall be forgiven and shall not be
required to be repaid and shall be deemed to be in consideration for
services rendered after the date of the Termination.
7.6 NONDUPLICATION OF BENEFITS. To the extent, and only to the extent, a
payment or benefit that is paid or provided under this Section 7 would also be
paid or provided under the terms of the applicable plan, program or arrangement,
such applicable plan, program or arrangement will be deemed to have been
satisfied by the payment made or benefit provided under this Agreement.
8. MITIGATION OF DAMAGES. Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise after the termination of his employment
hereunder and no amounts earned by Executive, whether from
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self-employment, as a common-law employee or otherwise, shall reduce the amount
of any Termination Payment otherwise payable to him; PROVIDED, HOWEVER, that the
Executive's coverage under the Company's welfare benefit plans for the
Continuation Period as provided in Section 7.1(a)(iii) will be reduced to the
extent that the Executive becomes covered under any comparable employee benefit
plan made available by another employer and covering the same type of benefits.
The Executive will report to the Company any such benefits he actually receives.
9. CONFIDENTIAL INFORMATION
The Executive agrees to keep secret and retain in the strictest confidence
all confidential matters which relate to the Parent, the Company, its
subsidiaries and affiliates, including, without limitation, customer lists,
client lists, trade secrets, pricing policies and other business affairs of the
Parent, the Company, its subsidiaries and affiliates learned by him from the
Parent, the Company or any such subsidiary or affiliate or otherwise before or
after the date of this Agreement, and not to disclose any such confidential
matter to anyone outside the Parent, the Company or any of its subsidiaries or
affiliates, whether during or after his period of service with the Company,
except (i) as such disclosure may be required or appropriate in connection with
his work as an employee of the Company or (ii) when required to do so by a court
of law, by any governmental agency having supervisory authority over the
business of the Parent or the Company or by any administrative or legislative
body (including a committee thereof) with apparent jurisdiction to order him to
divulge, disclose or make accessible such information. The Executive agrees to
give the Parent and the Company advance written notice of any disclosure
pursuant to clause (ii) of the preceding sentence and to cooperate with any
efforts by the Parent or the Company to limit the extent of such disclosure.
Upon request by the Parent or the Company, the Executive agrees to deliver
promptly to the Parent or the Company upon termination of his services for the
Company, or at any time thereafter as the Parent, the Company may request, all
Parent, Company, subsidiary or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer files in any media and other documents (and
all copies thereof) relating to the Parent or the Company's or any subsidiary's
or affiliate's business and all property of the Parent or the Company or any
subsidiary or affiliate associated therewith, which he may then possess or have
under his direct control, other than personal notes, diaries, rolodexes and
correspondence.
10. REMEDY
Should the Executive engage in or perform, either directly or indirectly,
any of the acts prohibited by Section 9 hereof, it is agreed that the Parent and
the Company shall be entitled to full injunctive relief, to be issued by any
competent court of equity, enjoining and restraining the Executive and each and
every other person, firm, organization, association, or corporation concerned
therein, from the continuance of such violative acts; PROVIDED, HOWEVER, that
nothing herein shall permit the Parent or the Company to cease making payments
or providing any benefits to the Executive as provided for under this Agreement,
regardless of whether or not any such injunctive or other relief is issued, and
the Executive shall be entitled to summary judgment against the Parent or the
Company upon any failure to make such payments or to provide such benefits. The
foregoing remedy available to the Parent and the Company shall not be deemed to
limit or prevent the exercise by the Parent or the Company of any or all further
rights and remedies which may be available to the Parent or the Company
hereunder or at law or in equity.
11. NOTICES. All notices or communications hereunder shall be in writing,
addressed to the Parent at:
Powergen UK plc
53 New Broad Street
London EC2M 1JJ
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Attn: David Jackson,
General Counsel and Company Secretary
and the Company at:
LG&E Energy Corp.
220 West Main Street
Louisville, KY 40402
Attn: Fred Newton,
Senior Vice President and Chief Administrative Officer
All notices or communications hereunder to Executive shall be addressed to the
Executive at the address listed for Executive in the Company's personnel files
or such other address as the Executive may, in writing, choose. Any such notice
or communication shall be delivered by hand or by courier or sent certified or
registered mail, return receipt requested, postage prepaid, addressed as above
(or to such other address as such party may designate in a notice duly delivered
as described above), and the third business day after the actual date of mailing
shall constitute the time at which notice was given.
12. SEPARABILITY; LEGAL FEES. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. The Company shall reimburse Executive's legal
fees and expenses in connection with any dispute under this Agreement, without
regard to which party prevails.
13. ASSIGNMENT. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company or the Parent, except that the Company may assign
this Agreement to any successor (whether by merger, purchase or otherwise) to
all or substantially all of the stock, assets or business of the Company, if
such successor expressly agrees to assume the obligations of the Company
hereunder.
14. AMENDMENT; WAIVERS. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, approved by the Parent and the
Company and signed by the Executive, the Parent and the Company. Failure on the
part of either party to complain of any action or omission, breach or default on
the part of the other party, no matter how long the same may continue, will
never be deemed to be a waiver of any rights or remedies hereunder, at law or in
equity. The Executive, the Parent or the Company may waive compliance by the
other party with any provision of this Agreement that such other party was or is
obligated to comply with or perform only through an executed writing; PROVIDED,
HOWEVER, that such waiver will not operate as a waiver of, or estoppel with
respect to, any other or subsequent failure.
15. BENEFICIARIES; REFERENCES. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
16. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. Without
limiting the generality of the foregoing, the provisions of Sections 7.5, 9 and
19 hereunder shall remain in effect as long as necessary to give effect thereto,
notwithstanding the
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expiration of the term of this Agreement. The provisions of this Section 16 are
in addition to the survivorship provisions of any other section of this
Agreement.
17. GOVERNING LAW. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the Commonwealth of Kentucky, without
reference to rules relating to conflicts of law.
18. WITHHOLDING. The Company shall be entitled to withhold from payment
any amount of withholding required by law.
19. POST TERMINATION ASSISTANCE. The Executive agrees that after his
employment with the Company has terminated he will provide, upon reasonable
notice, such information and assistance to the Parent or the Company as may
reasonably be requested by the Parent or the Company in connection with any
litigation in which it or any of its affiliates is or may become a party;
PROVIDED, HOWEVER, that the Parent or the Company agrees to reimburse the
Executive on an after-tax basis for any related out-of-pocket expenses,
including travel expenses.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
21. HEADINGS AND SECTION REFERENCES. The headings used in this Agreement
are intended for convenience or reference only and will not in any manner
amplify, limit, modify or otherwise be used in the construction or
interpretation of any provision of this Agreement. All section references are to
sections of this Agreement, unless otherwise noted.
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APPENDIX B
OPINION OF THE BLACKSTONE GROUP L.P.
February 27, 2000
Board of Directors
LG&E Energy Corp.
220 West Main Street
Louisville, Kentucky 40202
Gentlemen and Mesdames:
We understand that LG&E Energy Corp. ("LG&E") and PowerGen plc ("PowerGen")
have entered into an Agreement and Plan of Merger dated February 27, 2000 (the
"Merger Agreement"), which provides for, among other things, the acquisition of
LG&E by PowerGen (the "Merger"). Pursuant to the Merger Agreement, LG&E will
become a wholly owned subsidiary of PowerGen and each issued and outstanding
share of common stock, without par value, of LG&E ("LG&E common stock"), other
than those shares held in treasury by LG&E or by subsidiaries of LG&E and those
shares owned by PowerGen or by subsidiaries of PowerGen, will be exchanged for
$24.85 in cash (the "Consideration"). The terms and conditions of the Merger are
fully set forth in the Merger Agreement.
You have asked us whether, in our opinion, the Consideration is fair to the
holders of LG&E common stock from a financial point of view.
In arriving at the opinion set forth below we have (i) reviewed, among other
things, certain publicly available information concerning the business,
financial condition and operations of LG&E and PowerGen which we believe to be
relevant to our inquiry, and certain internal financial analyses, and estimates
and forecasts relating to LG&E prepared by, and furnished to us by, LG&E
management; (ii) held discussions with members of management of LG&E concerning
their business, operating environment, financial condition, prospects and
strategic objectives; (iii) reviewed the historical market prices and trading
activity for LG&E common stock; (iv) compared certain financial and stock market
information for LG&E with similar information for certain other companies, the
securities of which are publicly traded; (v) reviewed the financial terms of
certain recent business combinations in the electric utility industry;
(vi) reviewed the Merger Agreement; and (vii) performed such other studies and
analyses, and taken into account such other matters, as we deemed appropriate.
In arriving at our opinion, we have relied without independent verification
upon the accuracy and completeness of all of the financial and other information
reviewed by us that was publicly available, that was supplied or otherwise made
available to us by LG&E or PowerGen or that was otherwise reviewed by us.
Without limiting the generality of the foregoing, we have assumed that the
financial forecasts and the estimates prepared by LG&E and provided to us have
been reasonably determined on a basis reflecting the best currently available
judgments and estimates of LG&E, and that such forecasts and such estimates will
be realized in the amounts and at the times contemplated thereby.
We have further relied upon the assurances of LG&E management that they are
not aware of any facts that would make such information inaccurate, incomplete
or misleading. We have also relied on PowerGen's representation in the Merger
Agreement regarding its ability to finance the Merger and have not independently
analyzed that ability. In addition, we have not (i) reviewed internal business
plans or financial projections from PowerGen, relating to PowerGen's future
financial performance; (ii) conducted a physical inspection of the properties
and facilities, sales, marketing distribution and service organizations or
product markets of LG&E; (iii) made an independent evaluation or appraisal
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of the assets and liabilities of LG&E; or (iv) independently evaluated the
potential future financial impact on LG&E associated with performance based
rate-making, the power supply contract with Oglethorpe Power Corp. or Nitrous
Oxide related capital spending.
We have not considered the relative merits of the Merger as compared to any
other business plan or opportunity that might be available to LG&E or the effect
of any other arrangement in which LG&E might engage, although we are aware of
discussions that LG&E has had over the last year with other potential
transaction partners. We have assumed that the Merger and the other transactions
contemplated by the Merger Agreement will be consummated on substantially the
same terms set forth therein. Our opinion is necessarily based upon economic,
market, monetary, regulatory and other conditions as they exist and can be
evaluated, and the information made available to us, as of the date hereof. It
should be understood that, although subsequent developments may affect this
opinion, we do not have any obligation to update, revise or reaffirm this
opinion. Furthermore, we express no opinion as to the prices or trading ranges
at which LG&E common stock will trade at any time.
This letter does not constitute a recommendation to any shareholder as to
how such holder should vote with respect to the Merger, and should not be relied
upon by any shareholder as such.
We have acted as financial advisor to LG&E with respect to the proposed
Merger and will receive a fee from LG&E for our services. LG&E has also agreed
to indemnify us for certain liabilities that may arise out of the rendering of
this opinion. In addition, we have performed other investment banking and
financial advisory services for LG&E in the past for which we have received
customary compensation.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration is fair to the holders of LG&E common stock from
a financial point of view.
Very truly yours,
/s/ THE BLACKSTONE GROUP L.P.
--------------------------------------
THE BLACKSTONE GROUP L.P.
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APPENDIX C
CHAPTER 271B, SUBTITLE 13 OF THE KENTUCKY BUSINESS CORPORATION ACT
Kentucky Revised Statutes
Chapter 271B Business Corporations
Subtitle 13 Dissenters' Rights
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
271B.13-010 DEFINITIONS.--As used in this subtitle:
(1) "Corporation" means the issuer of the shares held by a dissenter, except
that in the case of a merger where the issuing corporation is not the surviving
corporation, then, after consummation of the merger, "corporation" shall mean
the surviving corporation.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under KRS 271B.13-020and who exercises that right when and in
the manner required by KRS 271B.13-200 to 271B.13-280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable. In
any transaction subject to the requirements of KRS 271B.12-210 or exempted by
KRS 271B.12-220(2), "fair value" shall be at least an amount required to be paid
under KRS 271B.12-220(2) in order to be exempt from the requirements of KRS
271B.12-210.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
271B.13-020 RIGHT TO DISSENT.--(1) A shareholder shall be entitled to dissent
from, and obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If shareholder approval is required for the merger by KRS 271B.11-040 or
the articles of incorporation and the shareholder is entitled to vote on the
merger; or
2. If the corporation is a subsidiary that is merged with its parent under
KRS 271B.11-040;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
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(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
(1) year after the date of sale;
(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
1. Alters or abolishes a preferential right of the shares to a distribution
or in dissolution;
2. Creates, alters, or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase, of the
shares;
3. Excludes or limits the right of the shares to vote on any matter other
than a limitation by dilution through issuance of shares or other securities
with similar voting rights; or
4. Reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under KRS
271B.6-040;
(e) Any transaction subject to the requirements of KRS 271B.12-210 or
exempted by KRS 271B.12-220(2); or
(f) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for his shares
under this chapter shall not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
271B.13-030 DISSENT BY NOMINEE AND BENEFICIAL OWNERS.--(1) A record shareholder
may assert dissenters' rights as to fewer than all the shares registered in his
name only if he shall dissent with respect to all shares beneficially owned by
any one (1) person and notify the corporation in writing of the name and address
of each person on whose behalf he asserts dissenters' rights. The rights of a
partial dissenter under this subsection shall be determined as if the shares as
to which he dissents and his other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
(a) He submits to the corporation the record shareholder' s written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
(b) He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
271B.13-200 NOTICE OF DISSENTERS' RIGHTS.--(1) If proposed corporate action
creating dissenters' rights under KRS 271B.13-020 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this subtitle and the
corporation shall undertake to provide a copy of this subtitle to any
shareholder entitled to vote at the shareholders' meeting upon request of that
shareholder.
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(2) If corporate action creating dissenters' rights under KRS 271B.13-020 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in KRS 271B.13-220.
271B.13-210 NOTICE OF INTENT TO DEMAND PAYMENT.--(1) If proposed corporate
action creating dissenters' rights under KRS 271B.13-020 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights:
(a) Shall deliver to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated; and
(b) Shall not vote his shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1) of this section shall not be entitled to payment for his shares under this
chapter.
271B.13-220 DISSENTERS' NOTICE.--(1) If proposed corporate action creating
dissenters' rights under KRS 271B.13-020 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of KRS 271B.13-210. (2) The
dissenters' notice shall be sent no later than ten (10) days after the date the
proposed corporate action was authorized by the shareholders, or, if no
shareholder authorization was obtained, by the board of directors, and shall:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty (30), nor more than sixty (60) days
after the date the notice provided in subsection (1) of this section is
delivered; and
(e) Be accompanied by a copy of this subtitle.
271B.13-230 DUTY TO DEMAND PAYMENT.--(1) A shareholder who is sent a dissenters'
notice described in KRS 271B.13-220 shall demand payment, certify whether he
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to subsection (2)(c) of KRS
271B.13-220, and deposit his certificates in accordance with the terms of the
notice.
(2) The shareholder who demands payment and deposits his share certificates
under subsection (1) of this section shall retain all other rights of a
shareholder until these rights are cancelled or modified by the taking of the
proposed corporate action.
(3) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
shall not be entitled to payment for his shares under this subtitle.
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271B.13-240 SHARE RESTRICTIONS.--(1) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
KRS 271B.13-260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares shall retain all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
271B.13-250 PAYMENT.--(1) Except as provided in KRS 271B.13-270, as soon as the
proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with KRS 271B.13-230 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(2) The payment shall be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated; and
(d) A statement of the dissenter's right to demand payment under KRS
271B.13-280.
271B.13-260 FAILURE TO TAKE ACTION.--(1) If the corporation does not take the
proposed action within sixty (60) days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under KRS 271B.13-220 and repeat the payment demand
procedure.
271B.13-270 AFTER-ACQUIRED SHARES.--(1) A corporation may elect to withhold
payment required by KRS 271B.13-250 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenters' right to demand payment under KRS
271B.13-280.
271B.13-280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--(1) A
dissenter may notify the corporation in writing of his own estimate of the fair
value of his shares and amount of interest due, and demand payment of his
estimate (less any payment under KRS 271B.13-250), or reject the corporation's
offer under KRS 271B.13-270 and demand payment of the fair value of his shares
and interest due, if:
(a) The dissenter believes that the amount paid under KRS 271B.13-250 or
offered under KRS 271B.13-270 is less than the fair value of his shares or that
the interest due is incorrectly calculated;
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(b) The corporation fails to make payment under KRS 271B.13-250 within sixty
(60) days after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty (60) days after the date set for demanding
payment.
(2) A dissenter waives his right to demand payment under this section unless
he shall notify the corporation of his demand in writing under subsection
(1) of this section within thirty (30) days after the corporation made or
offered payment for his shares.
JUDICIAL APPRAISAL OF SHARES
271B.13-300 COURT ACTION.--(1) If a demand for payment under KRS 271B.13-280
remains unsettled, the corporation shall commence a proceeding within sixty
(60) days after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty (60) day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court of
the county where a corporation's principal office (or, if none in this state,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section shall be plenary and exclusive. The court may
appoint one (1) or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters shall be
entitled to the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding shall be entitled to
judgment:
(a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired shares
for which the corporation elected to withhold payment under KRS 271B.13-270.
271B.13-310 COURT COSTS AND COUNSEL FEES.--(1) The court in an appraisal
proceeding commenced under KRS 271B.13-300 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under KRS 271B.13-280.
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(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters, if the
court finds the corporation did not substantially comply with the requirements
of KRS 271B.13-200 to 271B.13-280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this subtitle.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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[LGE ENERGY LOGO]
-------------------------
ADMISSION TICKET
LG&E ENERGY CORP.
ANNUAL MEETING OF SHAREHOLDERS
, , 2000
[ ], EDT
[Kentucky International Convention Center
(formerly Commonwealth Convention Center)
Third and Market Streets
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 RECOMMENDS A VOTE "FOR" EACH PROPOSAL
<TABLE>
<S> <C> <C> <C>
1. APPROVAL OF AGREEMENT AND PLAN OF / / I plan to attend the Annual Meeting,
MERGER, DATED FEBRUARY 27, 2000, AMONG and I will bring guest(s).
POWERGEN PLC, LG&E ENERGY CORP. AND TWO
INDIRECT WHOLLY OWNED SUBSIDIARIES OF
POWERGEN PLC.
/ / For / / Against / / Abstain
2. ELECTION OF DIRECTORS
/ / FOR all nominees listed below
(except as marked to the contrary
below)
/ / WITHHOLD AUTHORITY to vote for all
nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO
VOTE FOR AN INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME)
WILLIAM C. BALLARD, JR.
T. BALLARD MORTON, JR.
WILLIAM L. ROUSE, JR.
CHARLES L. SHEARER
------------------------------------------------
3. APPROVAL OF ARTHUR ANDERSEN LLP
AS INDEPENDENT AUDITORS FOR 2000 SIGNATURE
/ / For / / Against / / Abstain
DATE
<S> <C>
1. COMMON
[LGE ENERGY LOGO]
2.
PROXY
3. ------------------------------------------------
SIGNATURE
SIGNATURE(S) SHOULD CORRESPOND TO THE NAME(S)
APPEARING IN THIS PROXY. IF EXECUTOR, TRUSTEE,
GUARDIAN, ETC. PLEASE INDICATE.
</TABLE>
<PAGE>
[LOGO]
TRIANGLE DETACH HERE TRIANGLE TRIANGLE DETACH HERE TRIANGLE
LG&E ENERGY CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- , 2000
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 , 2000, 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.
THE 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 2 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.
