Shareholders may vote either in person or by duly authorized proxy. The giving of a proxy will not prevent a shareholder from voting in person at the meeting. A proxy may be revoked by a shareholder at any time prior to the voting thereof by giving written notice to the Secretary of the Company prior to such voting. All shares entitled to vote and represented by effective proxies on the enclosed form, received by the Company, will be voted at the meeting (or any adjourned session thereof) in accordance with the terms of such proxies. Each Participant in the Company's Automatic Dividend Reinvestment and Stock Purchase Plan (the "Reinvestment Plan"), Kentucky Utilities' Employee Stock Ownership Plan (the "ESOP") or the Kentucky Utilities Employee Savings Plan (the "Savings Plan") will receive a form of proxy by which such Participant may direct the agent or trustee under such Plans as to the manner of voting shares credited to the Participant's accounts under such Plans. Shareholders of record who are participants in the Reinvestment Plan will receive only one form of proxy for their certificated shares and those shares which they may have acquired through reinvested dividends. A Participant of any of such Plans wishing to vote in person at the meeting may obtain a proxy for shares credited to his account under such Plans by making a written request therefor by April 8, 1996, as follows: for the Reinvestment Plan, to George S. Brooks II, Secretary of the Company, at the address stated on page 1; for the ESOP, to Banc One Kentucky, PO Box 32500, Louisville, Kentucky 40232, Attention: Barbara J. Steele, Trust Investment Division; and for the Savings Plan, to National City Bank, Kentucky, PO Box 36010, Louisville, Kentucky 40233, Attention: Judith E. Meany. Election of Directors WARREN W. ROSENTHAL, who has served as a director of the Company since 1991 and of Kentucky Utilities Company since 1976, will [PHOTO] not stand for re-election at the 1996 Annual Meeting of Shareholders in accordance with the Board of Directors' retirement policy. The Company expresses its appreciation to Mr. Rosenthal for his substantial contribution and his years of dedicated service as a director. General. Five directors are to be elected at the meeting. Barring unforeseen circumstances and in the absence of contrary directions, the proxies solicited herewith will be voted for the election of Mira S. Ball, Carol M. Gatton, Frank V. Ramsey, Jr., Charles L. Shearer and Lee T. Todd, Jr. as directors of the Company, to hold office until the 1999 Annual Meeting of Shareholders of the Company or, in the case of Mr. Gatton, until the 1998 Annual Meeting of Shareholders, or in each case until their respective successors shall have been duly elected and qualified. The proxies may also be voted for a substitute nominee or nominees in the event any one or more of said persons shall be unable to serve for any reason or be withdrawn from nomination, an occurrence not now anticipated. Except as otherwise indicated, each nominee has been engaged in his present principal occupation for at least the past five years. All information regarding share ownership is as of January 31, 1996. -96- The following information is given with respect to the nominees for election as directors: MIRA S. BALL, 61, is Secretary-Treasurer and Chief Financial Officer of Ball Homes, Inc., a single-family residential [PHOTO] developer and property management company. She has been a director of the Company and Kentucky Utilities since 1992. Ms. Ball beneficially owns 5,986 shares of Common Stock of the Company. CAROL M. GATTON, 63, is Chairman of Area Bancshares, Inc., a bank holding company in Owensboro, Kentucky. He is also involved [PHOTO] in real estate ventures and automobile dealerships. Mr. Gatton beneficially owns 1,000 shares of Common Stock of the Company. FRANK V. RAMSEY, JR., 64, is President and Director of Dixon Bank, Dixon, Kentucky, and a farm owner and operator. He has [PHOTO] been a director of the Company since 1991 and a director of Kentucky Utilities since 1986. Mr. Ramsey beneficially owns 1,400 shares of Common Stock of the Company. CHARLES L. SHEARER, PH.D., 53, is President of Transylvania University, Lexington, Kentucky. He has been a director of the [PHOTO] Company since 1991 and a director of Kentucky Utilities since 1987. Dr. Shearer beneficially owns 1,389 shares of Common Stock of the Company which include 200 shares held solely by his wife and 14 shares held by his children. LEE T. TODD, JR., PH.D., 49, is President and Chief Executive Officer of DataBeam Corporation, a Kentucky-based high [PHOTO] technology firm. He was elected a director of the Company and Kentucky Utilities in August of 1995 when the number of positions on the Boards was increased. Dr. Todd beneficially owns 500 shares of the Common Stock of the Company. -97- Information with respect to those directors whose terms are not expiring is as follows: HARRY M. HOE, 70, is President and a director of J. R. Hoe & Sons, Inc., Middlesboro, Kentucky, a foundry and casting [PHOTO] company. He has been a director of the Company since 1991 and a director of Kentucky Utilities since 1979. Mr. Hoe beneficially owns 15,794 shares of Common Stock of the Company which include 5,088 shares held solely by his wife. His term expires in 1998. MILTON W. HUDSON, 68, has been an economic consultant (Washington, DC) since 1991. He was Managing Director and Senior [PHOTO] Economic Advisor of Morgan Guaranty Trust Company of New York from January 1990 until his retirement in June 1991. He has been a director of the Company since 1991 and a director of Kentucky Utilities since 1990. Mr. Hudson beneficially owns 1,142 shares of Common Stock of the Company. His term expires in 1997. JOHN T. NEWTON, 65, retired in 1995 as Chairman of the Board and Chief Executive Officer of the Company and Kentucky Utilities, a [PHOTO] position he had held since 1987. He had also been President of these companies from 1987 to November 1, 1994. Mr. Newton has been a director of the Company since 1988 and a director of Kentucky Utilities since 1974. He beneficially owns 32,653 shares of Common Stock of the Company which include 7,668 shares held jointly with his wife and 5,000 shares held solely by his wife. His term expires in 1997. WILLIAM L. ROUSE, JR., 63, was Chairman of the Board and Chief Executive Officer and a director of First Security Corporation [PHOTO] of Kentucky, a multi-bank holding company, prior to his retirement in 1992. Mr. Rouse is a director of Ashland, Incorporated. He has been a director of the Company since 1991 and a director of Kentucky Utilities since 1989. Mr. Rouse beneficially owns 1,000 shares of Common Stock of the Company. In addition, Mr. Rouse's account under the Directors Deferred Compensation Plan described below has the equivalent of 2,186 shares of Common Stock. His term expires in 1997. MICHAEL R. WHITLEY, 53, was elected Chairman, President and Chief Executive Officer of the Company and Kentucky Utilities on [PHOTO] August 1, 1995. He had been President and Chief Operating Officer of the Company and Kentucky Utilities since November 1, 1994. He was Executive Vice President of these companies from August 1, 1994 to November 1, 1994. Before this period, he had been a Senior Vice President of the Company since 1988 and of Kentucky Utilities since 1987. Mr. Whitley was Secretary of the Company from 1988 until 1992 and of Kentucky Utilities from 1978 until 1992. Mr. Whitley is a director of LFS Bancorp Inc. and its wholly owned subsidiary, Lexington Federal Savings Bank. Mr. Whitley has been a director of the Company and Kentucky Utilities since 1992. Mr. Whitley beneficially owns 24,122 shares of the Common Stock of the Company which include 6,300 shares held jointly with his wife and 337 shares held solely by his wife. His term expires in 1998. -98- Voting Securities Beneficially Owned by Directors, Nominees and Executive Officers. The directors, nominees and executive officers of the Company and Kentucky Utilities owned beneficially at January 31, 1996 an aggregate of 181,707 shares of Common Stock of the Company, representing in the aggregate .5% of such stock. Meetings and Committees of the Board of Directors. All members of the Company's Board of Directors are currently members of Kentucky Utilities' Board of Directors. The Board of Directors of the Company and the Board of Directors of Kentucky Utilities have each established six committees: the Executive Committee, the Audit Committee, the Compensation Committee, the Finance Committee, the Long-Range Planning Committee, and the Nominating and Corporate Governance Committee. Committee members are the same for committees of the Company and committees of Kentucky Utilities. During 1995, the Board of Directors of the Company held 19 meetings (including Committee meetings), and the Board of Directors of Kentucky Utilities held 22 meetings (including Committee meetings). During 1995, each current director attended 100% of the meetings of the Company's and Kentucky Utilities' Board of Directors and applicable committee meetings. The members of the Executive Committee are Messrs. Newton, Rosenthal, Rouse, Shearer and Whitley. Neither the Company's nor Kentucky Utilities' Executive Committee met during 1995. The Executive Committee has the full power of the Board between meetings of the Board, except as provided by law. The members of the Audit Committee are Ms. Ball and Messrs. Hoe, Hudson and Rouse. The Company's Audit Committee met two times in 1995 as did the Kentucky Utilities' Audit Committee. The Audit Committee selects and engages (and may discharge) the Company's independent auditors; approves or disapproves each professional service or type of service to be provided by the auditors; meets with the auditors regarding the scope and results of the annual audit and of internal accounting procedures and practices; reviews any recommendations which may be made by the independent auditors; and generally exercises supervision over all matters relating to audit functions, making periodic reports to the Board. The members of the Compensation Committee are Messrs. Ramsey, Rosenthal and Rouse. The Company's Compensation Committee met three times in 1995 and the Kentucky Utilities' Compensation Committee met five times. The Compensation Committee reviews compensation for all officers, directors' fees and fees paid to directors for membership on the various committees of the Board; makes recommendations to the Board at least annually with respect to appropriate levels of compensation and fees and administers certain benefit plans. The members of the Finance Committee are Messrs. Hudson, Ramsey, Rosenthal and Shearer. The Company's Finance Committee met one time in 1995 and the Kentucky Utilities' Finance Committee met twice in 1995. The Finance Committee monitors and reviews financing programs and capital structure of the Company, reviews the Company's cash position in order to establish programs for the proper investment of amounts determined to be available for such purpose from time to time, and reports to the Board at least annually concerning its activities, or, when appropriate, makes recommendations which the committee deems appropriate for action to be taken by the Board. The members of the Long-Range Planning Committee are Messrs. Ramsey, Rosenthal, Rouse, Shearer and Todd. The Company's Long-Range Planning Committee met once in 1995 as did the Kentucky Utilities Long-Range Planning Committee. The Long-Range Planning Committee makes recommendations to the Board with respect to the Company's future strategy. -99- Performance Graph. The following performance graph compares the performance for the last five years of the Company's Common Stock (or for periods prior to December 1, 1991, Kentucky Utilities' Common Stock) to the S&P 500 Index and the index of investor-owned electric and combination electric and natural gas utilities reported by Edison Electric Institute (the "EEI Index"). The graph gives total shareholder return in each case assuming $100 invested at December 31, 1990 and the reinvestment of all dividends. Following the graph is a chart giving the same information. [PERFORMANCE GRAPH APPEARS HERE] Shareholder Returns (Dividends Reinvested) DECEMBER 31, ----------------------------------------------- 1990 1991 1992 1993 1994 1995 ------- ------- ------- ------- ------- ------- KU Energy....................... $100.00 $142.00 $153.40 $166.87 $165.22 $194.85 EEI Index....................... 100.00 128.87 138.69 154.11 136.28 178.55 S&P 500 Index................... 100.00 130.47 140.41 154.56 156.60 215.45 Directors' Compensation. Each director of the Company is also a director of its principal subsidiary, Kentucky Utilities. Each director who is not an employee of the Company or Kentucky Utilities is paid an annual retainer of $20,000. This retainer is reduced by any retainer paid from a Company subsidiary. Kentucky Utilities pays non-employee directors an annual retainer of $15,000. Thus, the net annual Company retainer paid to such directors is $5,000 but the aggregate paid for serving on both Boards is $20,000. In addition to an annual retainer, the Company and Kentucky Utilities pay each non-employee director a $750 fee for each meeting of a Board or a particular committee attended; provided that if the Boards of the Company and Kentucky Utilities meet on the same day, only one $750 fee is paid for both meetings. Similarly, -100- if the same committee of the Boards of the Company and Kentucky Utilities meet on the same day, only one $750 fee is paid for both meetings. Out-of-pocket travel expenses are paid to directors for all meetings attended. All eligible directors of the Company and Kentucky Utilities are entitled to participate in the Director Retirement Retainer Programs (the "Director Retirement Plans") of the Company and Kentucky Utilities. Directors who are not, and have not previously been, an officer of Kentucky Utilities, the Company, or their affiliated companies ("outside directors") are eligible to participate. An outside director who is 65 years of age and has completed at least five consecutive years of service on the Company's and/or Kentucky Utilities' Board will receive, upon termination of service from a Board for any reason other than death, an annual retirement benefit equal to the annual retainer paid to such Board's directors in effect as of such termination, payable monthly over a period of years equal to the number of full years such director served on the Board, but not in excess of 10 years. Such payments cease, however, if the director dies before all such payments are made. The annual retainer in effect upon the director's termination from a Board will generally be calculated as described in the first paragraph under this caption. In the event of a change in control of the Company or Kentucky Utilities, any person then receiving a retirement benefit would be paid, within 30 days of the change in control, a lump-sum payment equal to the discounted present value of all then unpaid installments of the director's retirement benefit. In the event of a change in control, each outside director in office immediately prior to such change in control will be eligible to receive an accelerated retirement benefit if the director terminates service from a Board for any reason other than death within three years of the date of the change in control. Such accelerated retirement benefit would be paid in a lump sum within 30 days of such termination and would be equal to the discounted present value of the retirement benefit which such director would have received if the director had retired from the Board at age 70 (or for certain directors, 72) and lived to collect the full benefit otherwise payable under the applicable Director Retirement Plan. Such benefit would be based on the higher of the annual retainer in effect immediately prior to the change in control or immediately prior to such director's termination of service. Change in control is broadly defined under the Director Retirement Plans and includes any merger, consolidation, reorganization or sale of substantially all of the assets of the Company or Kentucky Utilities which results in less than a majority of the voting power of the resulting entity being owned by the holders of the Common Stock of the Company prior to the transaction; a change in the majority of the Board of Directors of the Company or Kentucky Utilities over a two-year period which is not approved by two-thirds of the incumbent directors; and the acquisition by any person or group of persons of beneficial ownership of 10% or more of the Common Stock of the Company or Kentucky Utilities. Directors may elect to have all or a specified portion of their directors' fees deferred under the Director Deferred Compensation Plans (the "Director Deferred Compensation Plans") of the Company and Kentucky Utilities. Amounts deferred will be maintained in unfunded accounts for each participant, which, based on a choice made by the Director, either: (1) bear interest at a floating rate based upon the average prime rate charged by banks as reported in the Federal Reserve Bulletin; or (2) experience appreciation (depreciation) and earnings based on a hypothetical investment in the Company's common stock. Amounts deferred under the Director Deferred Compensation Plans will be paid to the participant upon termination as a director for any reason other than death based on a choice made by the Director as permitted by the Director Deferred Compensation Plans in a single payment or, with interest, quarterly over a period of not to exceed 40 calendar quarters, or, with interest, annually over a period of not to exceed 10 years. In the event of a participant's death, payment of any remaining balance of credited amounts will be made in a single payment to a designated beneficiary. In certain cases, directors may receive a distribution of deferred amounts in the event of substantial financial hardship. Because officers of the Company and Kentucky Utilities receive no compensation for services as directors, any director who is an officer is not eligible to participate in the plans. -101- Executive Compensation. The following table contains information with respect to the compensation paid by (or earned from) the Company and Kentucky Utilities, for all services rendered during 1993 through 1995 in all capacities, to the Chief Executive Officers and the other four most highly compensated executive officers of the Company and Kentucky Utilities: Summary Compensation Table LONG-TERM COMPENSATION ANNUAL COMPENSATION PAYOUTS ----------------------- ------------ LTIP OTHER ANNUAL ------------ ALL OTHER BONUS COMPENSATION PAYOUTS COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(3) ($)(4) ($)(5) ($)(6) - --------------------------- ---- ---------- ------- ------------ ------------ ------------ JOHN T. NEWTON; 1995 328,616 74,811 23,959 0 232,257 Former Chairman of the Board, 1994 462,694 149,979 13,380 158,738 7,561 Former Chief Executive Officer, 1993 424,237 144,362 11,886 0 8,444 & Current Director of the Company & Kentucky Utilities(1) MICHAEL R. WHITLEY; 1995 318,467 73,476 116 0 4,686 Chairman of the Board, President 1994 245,490 67,157 481 50,508 5,560 & Chief Executive Officer & 1993 219,529 62,164 1,258 0 6,045 Director of the Company & Kentucky Utilities(2) JAMES W. TIPTON; 1995 227,591 39,942 1,445 0 4,667 Senior Vice President 1994 214,043 63,210 1,373 50,508 5,537 of the Company 1993 204,042 60,331 1,201 0 5,712 O. M. GOODLETT; 1995 210,195 44,550 0 0 4,500 Senior Vice President of the 1994 200,251 56,889 0 30,246 4,500 Company & Kentucky Utilities 1993 188,724 54,257 0 0 4,497 WAYNE T. LUCAS; 1995 194,553 42,160 711 0 4,692 Senior Vice President 1994 159,699 33,754 523 22,658 5,522 of Kentucky Utilities 1993 139,331 31,695 446 5,813 JAMES M. ALLISON; 1995 169,405 38,160 0 0 4,527 Senior Vice President 1994 133,674 29,131 0 0 4,500 of Kentucky Utilities 1993 110,885 24,222 5,576 0 0 - -------- (1) Retired as Chairman and CEO in August 1995. (2) Assumed additional titles of Chairman and CEO on August 1, 1995, having been President since November 1, 1994. (3) Bonuses are paid under the Incentive Plans. The bonus reported for Mr. Newton for 1995 has been prorated to reflect his retirement as of August 1, 1995. Any bonus earned but deferred under the Executive Deferred Compensation Plans is included in the Table. -102- (4) Other annual compensation consists of the following items: (1) amounts for group term life insurance and related taxes; (2) an amount for above-market interest earned and paid on deferred compensation for Mr. Newton in 1995; and (3) an amount for taxes related to moving expenses for Mr. Allison in 1993. (5) Reflects payouts under the Kentucky Utilities Performance Share Plan described under "Report of Compensation Committee on Executive Compensation" above. Performance goals were not met, and thus no payouts were made for the Performance Cycle that relates to 1993 and 1995 in the table above. Amounts shown for 1994 reflect a payout in the form of restricted shares of the Company's common stock of 75% of the contingent grant for the Performance Cycle commencing in 1991. Such restricted stock will be forfeited if the officer terminates employment prior to January 1, 2001 for any reason other than retirement, disability or death. In the event of a change in control, the restrictions lapse immediately. (6) All other compensation includes: (a) above-market-rate interest earned on deferred compensation; (b) the employer matching contribution made to the officer's account in the 401(k) Employee Savings Plan; and (c) Supplemental Security Plan Payment of $227,757 to Mr. Newton as the benefit payable for the period of August 1, 1995 through July 31, 1996. Such amounts for 1995 with respect to items (a) and (b) are shown in the following table. INTEREST ON 401(K) EXECUTIVE DEFERRED MATCHING OFFICER COMPENSATION CONTRIBUTION --------- ------------ ------------ John T. Newton................................ $N/A $4,500 Michael R. Whitley............................ $186 $4,500 James W. Tipton............................... $167 $4,500 O. M. Goodlett................................ $N/A $4,500 Wayne T. Lucas................................ $192 $4,500 James M. Allison.............................. $ 27 $4,500 Performance Shares contingently awarded under the Performance Share Plans in 1995 are reported in the Long-Term Incentive Plan awards table below. A description of how awards are determined is presented under "Report of Compensation Committee on Executive Compensation." A description of the scale by which performance targets are set follows the table. Long-Term Incentive Plan--Awards In Last Fiscal Year PERFORMANCE OR OTHER ESTIMATED FUTURE PAYOUTS UNDER NON- PERIOD STOCK NUMBER OF UNTIL PRICE-BASED PLANS(5) UNITS MATURATION ------------------------------------- OR OR THRESHOLD NAME OTHER RIGHTS PAYOUT(4) ($) TARGET ($) MAXIMUM ($) - ---- ------------ ----------- --------- --------------- ----------- John T. Newton.......... 1,727(1) 3 $ 0 $25,905-$38,858 $ 51,810 Michael R. Whitley...... 4,075(2) 3 $ 0 $61,125-$91,688 $122,250 James W. Tipton......... 2,445(2) 3 $ 0 $36,675-$55,013 $ 73,350 O. M. Goodlett.......... 2,200(3) 3 $ 0 $33,000-$49,500 $ 66,000 Wayne T. Lucas.......... 2,085(3) 3 $ 0 $31,275-$46,913 $ 62,550 James M. Allison........ 1,855(3) 3 $ 0 $27,825-$41,738 $ 55,650 - -------- (1) Constitutes Performance Shares contingently granted under the KUE Performance Share Plan in 1995 as adjusted on a prorated basis to reflect retirement as of August 1, 1995. -103- (2) Constitutes Performance Shares contingently granted under the KUE Performance Share Plan in 1995. (3) Constitutes Performance Shares contingently granted under the Kentucky Utilities Performance Share Plan in 1995. (4) Number of years in Performance Cycle. (5) See description below for the scale that determines which amount would be applicable. Amounts are calculated based on the price of the Company's Common Stock on December 31, 1995. For the Performance Cycle commencing in 1995, payouts of contingent grants shown in the table above will be determined by calculating the average return on equity for the Performance Cycle of the Company or Kentucky Utilities, as the case may be, compared to the average return on equity for the Performance Cycle for the comparable companies. The returns will be ranked in descending order. For the 1995-1997 Performance Cycle, the scale that determines if grants are earned is as follows: if the Company's or Kentucky Utilities' rank, as the case may be, is in the top two, the payout will be 100% of the contingent grant (the Maximum shown in the table); if their rank is third or fourth, the payout will be 75% and if their rank is fifth or sixth, the payout will be 50% (the two figures shown as Target in the table); and if their rank is seventh or below, no shares will be awarded (shown as the Threshold in the table) for that Performance Cycle under the applicable Performance Share Plan. Each of the officers of the Company and Kentucky Utilities is entitled to participate in the Kentucky Utilities employee retirement plans described below. Executive officers, like other employees, are eligible to participate in Kentucky Utilities' Retirement Plan, and all eligible persons whose compensation is reported in the Summary Compensation Table participated in the Retirement Plan. Contributions to the Retirement Plan are determined actuarially and cannot be readily calculated as applied to any individual participant or small group of participants. Generally, compensation for Retirement Plan purposes means base compensation while a participant, excluding overtime pay, commissions, performance incentive compensation or other extraordinary compensation. The compensation for Retirement Plan purposes of the individuals named in the foregoing table is substantially equivalent to the base salary reported in the Summary Compensation Table. The credited years of service under the Retirement Plan for such persons were as follows: Mr. Newton, 37 years; Mr. Whitley, 31 years; Mr. Tipton, 28 years; Mr. Goodlett, 25 years; Mr. Lucas, 26 years; and Mr. Allison, 1 year. All of the credited years of service were computed as of December 31, 1995 except for Mr. Newton's service which was determined as of August 1, 1995, his date of retirement. Retirement Plan benefits depend upon length of service, age at retirement and amount of compensation (determined in accordance with the Retirement Plan). Although higher amounts are determined under the Retirement Plan and shown in the table below, in most cases, pension benefits under the Retirement Plan or compensation used to measure such benefits will be reduced to comply with maximum limitations imposed by the Internal Revenue Code. Under such limitations effective in 1995, no base compensation above $150,000 may be used to calculate a benefit, except in the case of certain executive officers to preserve benefits accrued under previously applicable rules. In addition, no annual benefit derived from employer contributions may exceed $120,000. Assuming retirement at age 65, a Retirement Plan participant would be eligible at retirement for a maximum annual pension benefit (without taking into account the Internal Revenue Code limitations referred to above) set forth in the following table. However, assuming retirement at age 65, assuming 1995 base compensation and taking into account the Internal Revenue Code limitations, the annual pension benefit under the Retirement Plan for the executive officers named in the Summary Compensation Table would be as follows: Mr. Whitley, $101,643; Mr. Tipton, $93,138; Mr. Goodlett, $84,738; Mr. Lucas, $86,998; and Mr. Allison, $50,219. Mr. Newton's annual pension benefit under the Retirement Plan commencing on his August 1, 1995 retirement date is $106,309. -104- FINAL AVERAGE ANNUAL BENEFIT AFTER SPECIFIED YEARS OF SERVICE(2) BASE -------------------------------------------------------------- PAY(1) 15 20 25 30 35 40 45 ------- -------- -------- -------- -------- -------- -------- -------- $150,000................ $ 29,999 $ 39,999 $ 49,999 $ 59,999 $ 69,998 $ 79,998 $ 89,998 $200,000................ $ 39,999 $ 53,332 $ 66,665 $ 79,998 $ 93,331 $106,664 $119,997 $250,000................ $ 49,999 $ 66,665 $ 83,331 $ 99,998 $116,664 $133,330 $149,996 $300,000................ $ 59,999 $ 79,998 $ 99,998 $119,997 $139,997 $159,996 $179,996 $350,000................ $ 69,998 $ 93,331 $116,664 $139,997 $163,329 $186,662 $209,995 $400,000................ $ 79,998 $106,664 $133,330 $159,996 $186,662 $213,328 $239,994 $450,000................ $ 89,998 $119,997 $149,996 $179,996 $209,995 $239,994 $269,993 $500,000................ $ 99,998 $133,330 $166,663 $199,995 $233,328 $266,660 $299,993 $550,000................ $109,997 $146,663 $183,329 $219,995 $256,660 $293,326 $329,992 $600,000................ $119,997 $159,996 $199,995 $239,994 $279,993 $319,992 $359,991 - -------- (1) "Final average base pay" generally means the average annual compensation during the 60 consecutive months of highest pay during the period of employment. (2) Annual benefits shown are on a straight life annuity basis. Amounts shown are not subject to any deduction for Social Security benefits or other offset amounts. Benefits may be reduced by Internal Revenue Code limitations described above. Executive officers and certain other employees of the Company and Kentucky Utilities are eligible to be members in Kentucky Utilities' Supplemental Security Plan which provides retirement, disability and death benefits as well as a change in control retirement benefit and a change in control severance benefit. As to executive officers, upon retirement at age 65, an eligible member will receive 15 annual payments of an amount equal to 75% of basic compensation, offset by benefits payable from any defined benefit plan of the Company or an affiliate (such as Kentucky Utilities' Retirement Plan) and social security benefits. Basic compensation is the annualized base monthly salary of the member, exclusive of performance incentive compensation or other extraordinary compensation, in effect at termination of employment by retirement, disability or death. Upon termination of employment by death of an eligible executive officer prior to age 65, the member's beneficiary will receive an annual benefit equal to 50% of basic compensation until the later of the date such member would have attained age 65 or completion of 15 annual payments. Upon termination of employment by disability prior to age 65, the member will receive the "retirement benefit" if the member lives to retirement age and remains disabled or the "death benefit" if the member dies prior to retirement age and is disabled at death. Benefits will be paid from the general funds of the employer. The estimated annual benefits from Kentucky Utilities' Supplemental Security Plan that would be payable upon retirement at normal retirement age for the individuals named in the Summary Compensation Table (assuming 1995 basic salary) are as follows: Mr. Whitley, $145,164; Mr. Tipton, $62,166; Mr. Goodlett, $62,889; Mr. Lucas, $43,376; and Mr. Allison, $63,262. Mr. Newton's annual benefit under the Supplemental Security Plan, commencing on his August 1, 1995 retirement, is $227,757. To assist in providing funds to pay such benefits when they become payable, insurance is purchased on the lives of the members of the Supplemental Security Plan. Under the Supplemental Security Plan, members are entitled to change in control severance benefits in the following circumstances: (i) involuntary termination of the individual's employment within two years following the change in control for reasons other than cause, death, permanent disability or attainment of age 65; (ii) resignation within two years of the change in control for good reason (as defined in the plan); and (iii) in respect of the Chairman of the Board, the President, the Chief Financial Officer or, if such positions are filled by less than three persons, the Executive Vice President, in each case of Kentucky Utilities, -105- termination of employment for any reason during the 30-day period commencing on the first anniversary of the change in control. In such circumstances, the employee will be entitled to a change in control severance payment equal to a certain percentage (300% in the case of executive officers of the Company or Kentucky Utilities) of the sum of (i) the employee's basic compensation and (ii) the employee's target annual performance incentive compensation. In addition, the employee will be entitled to continuation of certain employee welfare benefits for up to three years following termination of employment, subject to an offset for comparable benefits. Under the Supplemental Security Plan, the employee is entitled to receive additional payments, if necessary, to reimburse the employee for certain federal excise tax liabilities. The Supplemental Security Plan's change in control retirement benefit provides that, upon termination of employment, other than for cause (as defined in the Supplemental Security Plan) following a change in control, an eligible member will receive a lump sum amount equal to the present value of the retirement benefit (described in the preceding paragraph and assuming the member is then 65 but prorated if the member then has less than 15 years of service, including an assumed three additional years of service for executive officers); provided that, if the termination is more than two years from the change in control, the calculation of years of service will not include the assumed additional three years and the compensation upon which the benefit is calculated will be the actual compensation in effect at termination (rather than the compensation in effect at the change in control which, if higher, would be used if termination occurred within two years of the change in control). The change in control severance benefits and change in control retirement benefits are effective for a minimum of five years, which is automatically extended from year to year unless Kentucky Utilities gives notice that it does not wish to extend the period of effectiveness. Change in control has essentially the same meaning as under the Director Retirement Plans described under "Directors' Compensation." The Performance Share Plans and Executive Deferred Compensation Plans contain provisions relating to a change in control. Under each of these plans a change in control has essentially the same meaning as under the Director Retirement Plans described under "Directors' Compensation." Under the Performance Share Plans, if a participant's employment is terminated voluntarily or involuntarily after a change in control, such participant will have the right to an immediate cash payment for all Performance Cycles in which the participant is currently participating. The amount payable to a participant in the event of termination in connection with a change in control will be determined in accordance with the formula specified in the Performance Share Plan. In addition, after a change in control, whether or not the participant is terminated, under the Executive Deferred Compensation Plans, all amounts held under such plans will be paid to the participant. General Independent Public Accountants. The Audit Committee of the Board has selected the firm of Arthur Andersen LLP as independent public accountants to examine the financial statements of the Company and Kentucky Utilities for 1996. The firm has served as the independent public accountants for the Company and Kentucky Utilities for many years. Representatives of the firm are not expected to be present at the annual meeting. Proposals of Shareholders. Under the rules of the Securities and Exchange Commission, any shareholder proposal intended to be presented at the 1997 Annual Meeting of Shareholders must be received by the Company at its principal executive offices no later than November 17, 1996 in order to be eligible to be considered for inclusion in the Company' proxy materials relating to that meeting. A shareholder submitting a proposal or nominating a person to serve as director must comply with procedures set forth in the Company's By-laws. In general, the By-laws provide that for business to be considered at an annual meeting -106-