**EXHIBIT4.27**

 

**LOAN AND SECURITYAGREEMENT**

 

**Dated as of August15, 2003**

 

**between**

 

**LOUISVILLE GAS ANDELECTRIC COMPANY**

 

**and**

 

**FIDELIACORPORATION**

 

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**TABLE OFCONTENTS**

 
| 1.     | DEFINITIONS                                       |                                                               |
|--------|---------------------------------------------------|--------------------------------------------------------------------|
|   |                                              |                                                               |
|   | 1.1                                               | General  Terms                                                     |   |
|   | 1.2                                               | Accounting Terms                                                   |   |
|   | 1.3                                               | Others Terms Defined in the Code                                   |   |
|   | 1.4                                               | Computation  of Time Periods                                       |   |
|   | 1.5                                               | Headings  and References                                           |   |
|   |                                              |                                                               |   |
| 2.     | TERM  LOANS                                       |                                                               |
|   |                                              |                                                               |   |
|   | 2.1                                               | Loans                                                              |   |
|   | 2.2                                               | Request for Purchase                                               |   |
|   | 2.3                                               | Interest                                                           |   |
|   | 2.4                                               | Notes                                                              |   |
|   | 2.5                                               | Closings                                                           |   |
|   | 2.6                                               | Payments                                                           |   |
|   | 2.7                                               | Term of This Agreement                                             |   |
|   |                                              |                                                               |   |
| 3.     | CONDITIONS  OF ADVANCES                           |                                                               |
|   |                                              |                                                               |   |
|   | 3.1                                               | Documents                                                          |   |
|   | 3.2                                               | No Default                                                         |   |
|   | 3.3                                               | Reaffirmation of Representations and Warranties                    |   |
|   |                                              |                                                               |   |
| 4.     | COLLATERAL                                        |                                                               |
|   |                                              |                                                               |   |
|   | 4.1                                               | Security Interest                                                  |   |
|   | 4.2                                               | Appointment of the Lender as the Borrower’s  Attorney-in-Fact |   |
|   | 4.3                                               | Preservation of Collateral and Perfection of Security Interests    |   |
|   | 4.4                                               | Reasonable  Care                                                   |   |
|   | 4.5                                               | Termination of Security Interest and Liens                         |   |
|   |                                              |                                                               |   |
| 5.     | REPRESENTATIONS AND WARRANTIES                    |                                                               |
|   |                                              |                                                               |   |
|   | 5.1                                               | Existence                                                          |   |
|   | 5.2                                               | Authority                                                          |   |
|   | 5.3                                               | Binding Effect                                                     |   |
|   | 5.4                                               | Financial Statements                                               |   |
|   | 5.5                                               | Collateral                                                         |   |
|   | 5.6                                               | Chief Executive Office Jurisdiction of  Incorporation              |   |
|   | 5.7                                               | Other Corporate Names                                              |   |
|   | 5.8                                               | Margin Security                                                    |   |
|   | 5.9                                               | Survival of Warranties                                             |   |
|   | 5.10                                              | Compliance with Laws and Regulations                               |   |
|   |                                              |                                                               |   |
| 6.     | COVENANTS                                         |                                                               |
|   |                                              |                                                               |   |
|   | 6.1                                               | Financial Statements; Notices; Reports                             |   |
|   | 6.2                                               | Books, Records and Inspections                                     |   |
|   | 6.3                                               | Conduct  of Business                                               |   |
|   |                                              |                                                               |   |
| 7.     | EVENTS OF DEFAULT, RIGHTS AND REMEDIES OF  LENDER |                                                               |
|   |                                              |                                                               |   |
|   | 7.1                                               | Events  of Default                                                 |   |

 

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|   | 7.2           | Rights and Remedies Generally                  |   |
|--------|---------------|------------------------------------------------|--------|
|   | 7.3           | Waiver of Demand                               |   |
|   | 7.4           | Marshalling; Payments Set Aside                |   |
|   |          |                                           |   |
| 8.     | SUBORDINATION |                                           |
|   |          |                                           |   |
|   | 8.1           | Agreement to Subordinate                       |   |
|   | 8.2           | Administration of Collateral                   |   |
|   | 8.3           | Delivery of Proceeds of Collateral             |   |
|   | 8.4           | Agreement Not to Contest                       |   |
|   | 8.5           | Release of Collateral                          |   |
|   | 8.6           | Release of Security Interest                   |   |
|   | 8.7           | Obligations under this Agreement Not  Affected |   |
|   | 8.8           | Bankruptcy                                     |   |
|   | 8.9           | Third Party Beneficiary                        |   |
|   |          |                                           |   |
| 9.     | MISCELLANEOUS |                                           |
|   |          |                                           |   |
|   | 9.1           | Amendments and Waivers                         |   |
|   | 9.2           | Severability                                   |   |
|   | 9.3           | Notices                                        |   |
|   | 9.4           | Counterparts                                   |   |
|   | 9.5           | Prior Agreements                               |   |
|   | 9.6           | Successors and Assigns                         |   |
|   | 9.7           | CHOICE  OF LAW                                 |   |

 
| **EXHIBITS** |
|--------------|
|         |   |   |   |
| EXHIBIT  A   | — | Form  of Note |   |

 

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**LOAN AND SECURITY AGREEMENT**

** **

This LOAN AND SECURITY AGREEMENT, dated as of August 15, 2003 (this “Agreement”),is made between LOUISVILLE GAS AND ELECTRIC COMPANY a Kentucky corporation, asborrower (the “Borrower”), and FIDELIA CORPORATION, a Delawarecorporation, as lender (the “Lender”).

 

**W I T N E S S E T H:**

** **

WHEREAS, the Borrower has requested that the Lender provide theBorrower with term loans;

 

WHEREAS, to induce the Lender to make such term loansavailable to the Borrower, the Borrower has agreed to secure its obligations tothe Lender by granting the Lender a security interest in, and lien upon, theCollateral (as defined herein); and

 

WHEREAS, the Lender is willing to make such term loansavailable to the Borrower  upon theterms and conditions set forth in this Agreement;

 

NOW, THEREFORE, in consideration of the foregoing andthe mutual agreements contained in this Agreement, the Borrower and the Lenderagree as follows:

 

# **1.****             DEFINITIONS**.

#  

## **1.1****          General Terms.** When used in this Agreement, the following terms have the followingmeanings (such meanings to be equally applicable to both the singular andplural forms of the terms defined):

##  

“Affiliate”, with respect to any Person, meansanother Person (i) that directly or indirectly, through one or moreintermediaries, controls or is controlled by or is under common control withsuch Person, (ii) that directly or beneficially owns or holds 5% or moreof any class of the voting stock of such Person or (iii) 5% or more of thevoting stock (or in the case of a Person that is not a corporation, 5% or moreof the equity interest) of which is owned directly or beneficially or held bysuch Person.

 

“Agreement” has the meaning set forth in the preamble.

 

“Authorized Officer” means at any time anindividual whose signature has been certified to the Lender on behalfof the Borrower by a certificate now or hereafter executed on behalf ofthe Borrower and delivered to the Lender and whose authority has not beenrevoked prior to such time.

 

“Bond Trustee” means BNY Midwest Trust Companyas trustee under the First Mortgage Bond Indenture, or any successor trusteethereunder.

 

“Borrower” has the meaning set forth in the preamble.

 

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“Business Day” means a day (other than aSaturday or Sunday) on which banks are open for business in Louisville,Kentucky and Wilmington, Delaware.

 

“Code” means the Uniform Commercial Code of theCommonwealth of Kentucky as in effect on the Closing Date.

 

“Collateral” has the meaning set forth in Section4.1.

 

“Default” means any event that, with lapse oftime or notice or lapse of time and notice, will constitute an Event of Defaultif it continues uncured.

 

“Dollars” and the “$” each means lawfulmoney of the United States of America.

 

“Equipment” has the meaning set forth in theCode and includes, without limitation, any and all of the Borrower’s now ownedor hereafter acquired machinery, equipment, furniture, furnishings and alltangible personal property similar to any of the foregoing (other thanInventory), together with all improvements, accessions and appurtenancesthereto and any proceeds of any of the foregoing, including insurance proceedsand condemnation awards, excluding, however, any Equipment which is not subjectto a Lien now or at any time hereafter pursuant to the First Mortgage BondIndenture.

 

“Event of Default” means the occurrence orexistence of any one of more of the events described in Section 7.1.

 

“First Mortgage Bond Indenture” means the TrustIndenture dated November 1, 1949 from the Borrower to the Bond Trustee, and anyand all supplemental indentures thereof, as further amended and supplementedfrom time to time.

 

“GAAP” means generally accepted accountingprinciples, as in effect in the United States from time to time.

 

“Governmental Authority” means any nation orgovernment, any federal, state, local or other political subdivision thereofand any entity exercising executive, legislative, judicial, regulatory oradministrative functions of or pertaining to government.

 

“Lender” has the meaning set forth in the preamble.

 

“Liabilities” means all of the Borrower’sliabilities, obligations, and indebtedness to the Lender for monetary amounts,whether now or hereafter owing, arising, due or payable under this Agreementand the Notes howsoever evidenced, created, incurred, acquired, or owing.

 

“Lien” means any mortgage, deed of trust,pledge, hypothecation, assignment, collateral deposit arrangement, securityinterest, encumbrance for the payment of money, lien (statutory or other),preference, right of setoff, priority or other security agreement orpreferential arrangement of any kind or nature whatsoever, including, withoutlimitation, any conditional sale or other title retention agreement, or theinterest of a lessor under a capital lease.

 

“Loan” has the meaning set forth in Section2.1.

 

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 “MaterialAdverse Effect” means a material adverse effect upon (i) the business,assets,  properties or condition(financial or otherwise), or results of operations of the Borrower, or(ii) upon the ability of the Borrower to perform or cause to be performedany of its obligations under this Agreement or the rights or remedies of theLender under this Agreement.

 

“Note” has the meaning set forth in Section2.4.

 

“Permitted Lien” means Liens created under orin connection with the First Mortgage Bond Indenture and Liens permitted by theFirst Mortgage Bond Indenture.

 

“Person” means any natural person, firm,enterprise, institution, corporation, association, partnership, trust,unincorporated organization, sole proprietorship, joint venture, limitedliability company or Governmental Authority.

 

## **1.2****          Accounting Terms.**  Any accounting terms used in this Agreementwhich are not specifically defined in this Agreement have the meaningscustomarily given them in accordance with GAAP.

##  

## **1.3****          Others Terms Defined in the Code.**  All other terms contained in this Agreement(and which are not otherwise specifically defined in the Agreement) have themeanings provided by the Code to the extent the same are used or defined in theCode.

##  

## **1.4****          Computation of Time Periods.**  In this Agreement in the computation of periods of time from aspecified date to a later specified date, the words “from” or “commencing on”means “from and including” and the words “to,” “through,” “ending on” and“until” each mean “to but excluding.”

##  

## **1.5****          Headings and References.** Section and other headings are for reference only, and shall not affectthe interpretation or meaning of any provision of this Agreement.  Any Section or clause references are to thisAgreement, unless otherwise specified. References in this Agreement or any other agreement include thisAgreement and other agreements as the same may be amended, restated,supplemented or otherwise modified from time to time pursuant to the provisionshereof or thereof.  A reference to anylaw, statute or regulation shall mean that law, statute or regulation as it maybe amended, supplemented or otherwise modified from time to time, and anysuccessor law, statute or regulation.

##  

# **2.****             TERM LOANS**.

#  

## **2.1****          Loans**.  The Lender, at its discretion, may makeavailable to the Borrower term loans (the “Loans”) from time to time pursuantto this Agreement, upon telephonic or written communication of a borrowingrequest from the Borrower as provided in Section 2.2.

##  

## **2.2****          Request for Loans**.  The Borrower may from time to time makerequests for Loans (each such request being a “Borrowing Notice”)hereunder.  Each Borrowing Notice shall(i) specify the principal amount of the Loan requested, (ii) specify the finalmaturity not to be less than one year from the Borrowing Date, (iii) specifythe proposed date for the borrowing of the Loan (the “Borrowing Date”),(iv) specify whether the Loan shall bear interest at a fixed rate or a floatingrate, (v) specify the dates on which interest is to be paid, and (vi) specifythe

 

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## number of theaccount and the name and address of the depository institution to which theproceeds of the Loan are to be transferred on the Borrowing Date.  Each Borrowing Notice may be giventelephonically or in writing.  Each suchrequest for a Loan is subject to acceptance by the Lender, in its solediscretion.

##  

## **2.3****          Interest**.

##  

### **(A)****          InterestRate**.  The interest rate payable bythe Borrower on any Loan shall be set at such interest rate as the Borrower andthe Lender shall agree, but in no event greater than the lowest of (i) theeffective cost of capital of E.ON AG, (ii) the effective cost of capital of theLender and (iii) the Borrower’s effective cost of capital determined byreference to the effective cost of a direct borrowing by the Borrower from anonassociate for a comparable term loan that could be entered into at suchtime.  Such interest rate may bedetermined as a fixed interest rate or a floating rate, as specified by theBorrower in the Borrowing Notice.

###  

### **(B)****          InterestPayments**.  Accrued but unpaidinterest on each Loan is payable in arrears on dates agreed to by the Borrowerand the Lender as specified in the Borrowing Notice and upon payment in full ofsuch Loan.  Interest on the Loans iscomputed on the basis of a 360-day year consisting of twelve 30-day months.

###  

### **(C)****          HighestLawful Rate**.  In no contingency orevent whatsoever will interest charged on the Loans, however, such interest maybe characterized or computed, exceed the highest rate permissible under any lawwhich a court of competent jurisdiction, in a final determination, deemsapplicable to the Loans. In the event that such a court determines that theLender has received interest under the Loans in excess of the highest rateapplicable to the Loans, any such excess interest collected by the Lender isdeemed to have been a repayment of principal and will be so applied.

###  

## **2.4****          Notes**.  On each Borrowing Date, the Borrower shallissue to the Lender a promissory note (the “Notes”) in a principalamount equal to the principal amount of the Loan to be made on such BorrowingDate; to bear interest on the unpaid balance thereof from the date thereof atthe rate per annum as determined in accordance with Section 2.3(A); andto be substantially in the form of Exhibit A attached hereto.  The term “Notes” as used herein shallinclude each Note delivered pursuant to this Agreement and each Note deliveredin substitution or exchange for any such Note.

##  

## **2.5****          Closings**.  Not later than 11:30 A.M. (New York Citylocal time) on the Borrowing Date for any Loan, the Borrower will deliver tothe Lender at the offices of the Lender, a Note dated the Borrowing Date,evidencing the Loan to be made on such Borrowing Date, against payment of theLoan proceeds by transfer of immediately available funds for credit to theBorrower’s account specified in the Borrowing Notice.

##  

## **2.6****          Payments**.

##  

### **(A)****          Placeof Payments.**  The Borrower will makeeach payment under this Agreement and under the Notes not later than2:00 p.m. (New York time) on the day when due to the Lender at its addressset forth in Section 9.3 in immediately available funds.  The Borrower’s

 

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### obligations to theLender with respect to such payments will be discharged by making such paymentsto the Lender under this Section 2.6.

###  

### **(B)****          Timingof Payments.**  If any payment of anyinterest or fees owing under this Agreement falls due on a day that is not aBusiness Day, then such due date is extended to the next following BusinessDay.

###  

### **(C)****          OptionalPrepayments.**  On any interestpayment date, and with at least three business day’s prior written notice, theBorrower shall be entitled to prepay any amount of the loan outstanding,provided such payment is not less than $1,000,000 and, provided further, theBorrower shall pay a prepayment charge equal to the present value of thedifference between (i) the interest payable provided in this loan agreement and(ii) the interest payable at the prevailing interest rate at the time ofprepayment, for the period from the date of prepayment through the finalmaturity date,  which difference, ifnegative, shall be deemed to be zero. The present value will be determinedusing the prevailing interest rate at the time of the prepayment as thediscount rate.

###  

## **2.7****          Term of This Agreement.** This Agreement shall remain in full force and effect until thesecond Business Day after the Borrower or the Lender gives notice to the otherparty hereto stating that it elects to terminate this Agreement.  Notwithstanding the termination of thisAgreement, until all of the Loans under this Agreement have been paid in fulland all financing arrangements between the Borrower and the Lender under thisAgreement have been terminated, all of the Lender’s rights and remedies underthis Agreement survive and the Lender is entitled to retain its securityinterest in and to all existing and future Collateral.

##  

# **3.****             CONDITIONS OF ADVANCES**.

#  

Notwithstandingany other provisions contained in this Agreement to the contrary, the making ofeach Loan provided for in this Agreement is conditioned upon the following:

 

## **3.1****          Documents.**  The Lender has received all of the following(or the delivery of such has been waived), each duly executed, in form andsubstance satisfactory to the Lender, and delivered on or prior to theapplicable Borrowing Date:

##  

##### (i)            ThisAgreement, duly executed by the Borrower.

#####  

##### (ii)           TheNote, evidencing such Loan, duly executed by the Borrower.

#####  

##### (iii)          UCC-1 financing statements listing theBorrower as debtor, and the Lender, as secured party, covering the Collateral.

#####  

##### (iv)          Certifiedcopies of all documents evidencing any necessary corporate action, consents andgovernmental approvals, if any, with respect to this Agreement and the Notes.

#####  

##### (v)           Asignature authorization certificate for the Borrower.

#####  

##### (vi)          Suchother documents as the Lender may reasonably request.

 

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## **3.2****          No Default**.  No Default or Event of Default has occurredand is continuing.

##  

## **3.3****          Reaffirmation of Representations and Warranties**..  The representations and warrantiescontained in Section 5 are true and correct in all material aspects onand as of the Borrowing Date.

##  

# **4.****             COLLATERAL**.

#  

## **4.1****          Security Interest.**  To securepayment of the Liabilities and performance of its obligations under thisAgreement and the Notes, the Borrower grants, mortgages, hypothecates andpledges to the Lender a continuing lien upon and security interest in all ofthe Borrower’s right, title and interest in the Collateral, wherever located,whether now or hereafter existing, owned, licensed, leased (to the extent ofthe Borrower’s leasehold interest in such property), consigned (to the extentof the Borrower’s ownership interest in such property), arising or acquired,subject, however, in all respects to the provisions of Section 8.  The “Collateral” shall consist of:  (i) theEquipment;  (ii) all insurance proceeds of orrelating thereto, (iii) all of the Borrower’s books and records relatingto any of the foregoing; and (iv) all accessions and additions to,substitutions for, and replacements, products and proceeds of any of theforegoing.

##  

## **4.2****          Appointment of the Lender as the Borrower’s Attorney-in-Fact**.  The Borrower irrevocably designates, makes,constitutes and appoints the Lender (and all persons designated by the Lender)as the Borrower’s true and lawful attorney-in-fact, and authorizes the Lender,in the Borrower’s or the Lender’s name, upon the occurrence and during thecontinuation of an Event of Default, with respect to any item of Collateral orthe proceeds of such Collateral, to do all acts and things which are necessary,in the Lender’s sole discretion, to fulfill the Borrower’s obligations underthis Agreement.

##  

## **4.3****          Preservation of Collateral and Perfection ofSecurity Interests**.  The Borrowerwill execute and deliver, or cause to be executed and delivered, to the Lenderat any time or times after the date of this Agreement at the request of theLender, all (i) financing statements or (ii) other documents (and, in each case, pay thecost of filing or recording the same in all public offices deemed necessary bythe Lender), as the Lender may request, in a form satisfactory to the Lender,to perfect and keep perfected the security interest, and preserve the priorityof such security interest, in the Collateral granted by the Borrower to theLender or to otherwise protect and preserve the Collateral and the Lender’ssecurity interest in the Collateral. Should the Borrower fail to do so, the Lender is authorized to sign anysuch financing statements as the Borrower’s agent.  The Borrower further agrees that a carbon, photographic or otherreproduction of this Agreement or of a financing statement is sufficient as afinancing statement.

##  

## **4.4****          Reasonable Care.**  The Lender is deemed to have exercisedreasonable care in the custody and preservation of any of the Collateral in itspossession if it takes such action for that purpose as the Borrower requests inwriting, but the Lender’s failure to comply with any such request will not ofitself be deemed a failure to exercise reasonable care.

##  

## **4.5****          Terminationof Security Interest and Liens****.** The Lender’s security interest and other liens in, on and to theCollateral terminates when all the Liabilities have been paid in full and thisAgreement has been terminated, at which time the Lender will reassign andredeliver (or

 

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## cause to bereassigned and redelivered) to the Borrower, or to such Person as the Borrowerdesignates, against receipt, such of the Collateral (if any) assigned by theBorrower to the Lender (or otherwise held by the Lender) as has not been soldor otherwise applied by the Lender under the terms of this Agreement and isstill held by it under this Agreement, together with appropriate instruments ofreassignment and release.  Any suchreassignment is without recourse upon or representation or warranty by theLender and will be at the Borrower’s cost and expense.

##  

# **5.****             REPRESENTATIONSAND WARRANTIES**.

#  

TheBorrower represents and warrants that as of the date of this Agreement and asof each Borrowing Date.

 

## **5.1****          Existence****.**  The Borrower is a corporation dulyorganized, validly existing and in good standing under the laws of theCommonwealth of Kentucky and is duly qualified as a foreign entity and is ingood standing in all jurisdictions where the nature and extent of the businesstransacted by it or the ownership of its assets makes such qualificationnecessary, except for those jurisdictions in which the failure so to qualify orto be in good standing would not have a Material Adverse Effect.

##  

## **5.2****          Authority****.**  The execution and delivery by the Borrowerof this Agreement and the Notes and the performance of the Borrower’sobligations under this Agreement and the Notes:  (i) are within the Borrower’s corporate powers;(ii) are duly authorized by the Borrower’s board of directors or othergoverning body; (iii) are not in contravention of the terms of theBorrower’s certificate of incorporation or bylaws or of any material indenture,agreement or undertaking to which the Borrower is a party or by which theBorrower or any of its property is bound; (iv) does not require anyconsent, registration or approval of any Governmental Authority, which has notbeen obtained; (v) does not contravene any material contractual orgovernmental restriction binding upon the Borrower; and (vi) will not,except as contemplated in this Agreement, result in the imposition of any Lien,claim or encumbrance upon any property of the Borrower under any existingmaterial indenture, mortgage, deed of trust, loan or credit agreement or othermaterial agreement or instrument to which the Borrower is a party or by whichit or its property may be bound or affected.

##  

## **5.3****          Binding Effect.**  This Agreement and the Notes are the legal,valid and binding obligations of the Borrower and are enforceable against theBorrower in accordance with their respective terms.

##  

## **5.4****          Financial Statements.**  The financial statements of the Borrowerfiled with the Securities and Exchange Commission since December 31, 2001 arein accordance with the books and records of the Borrower and fairly present thefinancial condition of the Borrower at the dates of such financial statementsand the results of operations for the periods indicated (subject, in the caseof unaudited financial statements, to normal year-end adjustments), and suchfinancial statements were prepared in conformity with GAAP (other than the absenceof notes to such financial statements).

 

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## **5.5****          Collateral****.**  Except for Permitted Liens and as otherwiseprovided in Section 8.5, all of the Collateral is and will continue tobe owned by the Borrower free and clear of all Liens, claims and encumbrances.

##  

## **5.6****          ChiefExecutive Office Jurisdict****ion of Incorporation.**  As of the date hereof, the principal placeof business and chief executive office of the Borrower is located at 220 WestMain Street, Louisville, Kentucky 40202 and the Borrower has been dulyincorporated in the Commonwealth of Kentucky.

##  

## **5.7****          Other Corporate Names.**  The Borrower has not used any othercorporate or fictitious names in the past five years.

##  

## **5.8****          Margin Security.** The Borrower owns no margin security and none of the proceeds of theLoans advanced under this Agreement will be used for the purpose of purchasingor carrying any margin securities or for the purpose of reducing or retiringany Indebtedness which was originally incurred to purchase any marginsecurities or for any other purpose not permitted by Regulations T, U or X ofthe Board of Governors of the Federal Reserve System.

##  

## **5.9****          Survival of Warranties.**  All representations contained in thisAgreement survive the execution and delivery of this Agreement.

##  

## **5.10****        Compliance with Laws and Regulations**.  The execution and delivery by the Borrowerof this Agreement and the performance of the Borrower’s obligations under thisAgreement and the Notes are not in contravention of any laws.  The Borrower is in compliance with all laws,orders, regulations and ordinances of all federal, foreign, state and localgovernmental authorities relating to the business, operations and the assets ofthe Borrower, including, without limitation, Regulations T, U and X of theBoard of Governors of the Federal Reserve System, except for laws, orders,regulations and ordinances the violation of which are not likely to have aMaterial Adverse Effect.

##  

# **6.****             COVENANTS**.

#  

TheBorrower covenants and agrees that, so long as any of the Liabilities remainoutstanding:

 

## **6.1****          Financial Statements; Notices; Reports.**  The Borrower will keep, in all materialrespects, proper books of record and account in which entries will be made ofall dealings or transactions of or in relation to the business and affairs ofthe Borrower, in accordance with GAAP consistently applied.  The Borrower will furnish to the Lender:

##  

### **(A)****          SECReports**.  Copies of annual reportsand quarterly reports filed by the Borrower with the Securities and ExchangeCommission on Forms 10-K and 10-Q, within 20 Business Days of the date offiling of such report;

###  

### **(B)****          DefaultNotices.**  As soon as practicable(but in any event not more than two Business Days after any Authorized Officerof the Borrower obtains knowledge of the occurrence of an event or theexistence of a circumstance giving rise to a Default or an Event of Default),notice of any and all Defaults or Events of Default;

 

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### **(C)****          Noticeof Change of Name.**  Notice inwriting to the Lender, as soon as practicable and in any event within five daysafter the occurrence of any change in the name, address or jurisdiction ofincorporation of the Borrower or the location of the books and records of theBorrower; and

###  

### **(D)****          OtherInformation.**  With reasonablepromptness, such other business or financial data as the Lender may reasonablyrequest.

###  

The Lender will take reasonable efforts to keep suchinformation, and all information acquired as a result of any inspectionconducted in accordance with Section 6.2 (and any other informationprovided to the Lender under this Agreement), confidential, provided that theLender may communicate such information (i) inaccordance with the Borrower’s written authorization, (ii) toany regulatory authority having jurisdiction over the Lender, (iii) to any other Person in connection with theexercise of the Lender’s rights under this Agreement, (iv) toany Person in any litigation in which the Lender is a party or (v) to any other Person if the Lender believes inits sole discretion that disclosure is necessary in connection with any legalprocess or informal investigative demand, whether issued by a court, judicialor administrative or legislative body or committee or other governmentalauthority.  Notwithstanding theforegoing, information will not be deemed to be confidential to the extent suchinformation (a) is available in the publicdomain, (b) becomes available in the publicdomain other than as a result of unauthorized disclosure by the Lender or (c) is acquired from a Person not known by theLender to be in breach of an obligation of secrecy to the Borrower.

 

## **6.2****          Books, Records and Inspections.**  The Lender, or any agent or employee designated by the Lender inwriting, has the right, from time to time after the date of this Agreement, tocall at the Borrower’s place or places of business (or any other place wherethe Collateral or any information relating to the Collateral is kept orlocated) during reasonable business hours and, without unreasonable hindranceor delay, (i) to inspect, audit, check and make copies of and extractsfrom the Borrower’s books, records, journals, orders, receipts and anycorrespondence and other data relating to the Borrower’s business or to anytransactions between the parties thereto, (ii) to make such verificationconcerning the Collateral as the Lender may consider reasonable under thecircumstances and (iii) to discuss the affairs, finances and business ofthe Borrower with any officers, employees or directors of the Borrower.

##  

## **6.3****          Conduct of Business.** Except as contemplated in this Agreement, the Borrower will(i) maintain its existence, (ii) continue in, and limit itsoperations to, the same general lines of business as that presently conductedby it or other businesses reasonably related thereto and (iii) comply withall laws, orders, regulations and ordinances of any federal, foreign, state orlocal governmental authority, except for such laws, orders, regulations andordinances the violation of which has no reasonable likelihood of having aMaterial Adverse Effect.

##  

# **7.****             EVENTS OF DEFAULT,RIGHTS AND REMEDIES OF LENDER.**

#  

## **7.1****          Events of Default.** If any one or more of the following events (“Events of Default”)occurs:

 

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###### **(A)****         **theBorrower fails to pay any of the principal of or interest on the Loans, or anyCommitment Fees or other amounts due hereunder, within 10 Business Days aftersuch amounts are due (whether by scheduled maturity, acceleration orotherwise);

######  

###### **(B)****         **theBorrower fails or neglects to perform, keep or observe any of its covenants,conditions or agreements contained in this Agreement;

######  

###### **(C)****         **anywarranty or representation now or hereafter made by the Borrower under thisAgreement is untrue or incorrect in any material respect when made;

######  

###### **(D)****         **aproceeding under any bankruptcy, reorganization, arrangement of debt,insolvency, readjustment of debt or receivership law or statute is filed by oragainst the Borrower, the Borrower makes an assignment for the benefit ofcreditors or the Borrower takes any requisite action to authorize any of theforegoing and, in the case of an involuntary proceeding filed against theBorrower, such proceeding is not discharged or dismissed within 30 days;

######  

###### **(E)****          **theBorrower voluntarily or involuntarily dissolves or is dissolved;

######  

###### **(F)****          **theBorrower becomes insolvent or fails generally to pay its debts as they becomedue;

######  

###### **(G)****         **theLender shall cease to have a valid, perfected security interest in all or anymaterial portion of the Collateral; or

######  

###### **(H)****         **E.ONAG shall cease to own, directly or indirectly, at least 80% of the votingcapital stock of the Borrower;

######  

then the Lender, upon notice to the Borrower, maydeclare the Loans to be immediately due and payable, whereupon the Loans willbecome immediately due and payable; *provided,* that if an Event of Defaultdescribed in Section 7.1(D) exists or occurs, the Loans shallautomatically, without notice of any kind, become immediately due and payable.

 

## **7.2****          Rights and Remedies Generally.**  Subject to the subordination provisions of Section8, upon the occurrence and continuance of an Event of Default, the Lenderhas, in addition to any other rights and remedies contained in this Agreement,all of the rights and remedies of a secured party under the Code or otherapplicable laws, all of which rights and remedies are cumulative, and noneexclusive, to the extent permitted by law. Any single or partial exercise by the Lender of any right or remedy fora default or breach of any term, covenant, condition or agreement in thisAgreement does not affect its rights and does not waive, alter, affect, orprejudice any other right or remedy to which the Lender may be lawfullyentitled for the same default or breach.

##  

## **7.3****          Waiver of Demand****.**  Demand, presentment, protest and notice ofnonpayment are waived by the Borrower. The Borrower also waives the benefit of all valuation, appraisaland exemption laws.

 

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## **7.4****          Marshalling;Payments Set Aside****.** The Lender is under no obligation to marshall any assets in favor of theBorrower or any other party or against or in payment of any or all of theLiabilities.  To the extent that theBorrower makes a payment or payments to the Lender or the Lender enforces itssecurity interests or exercises its rights of setoff, and such payment orpayments or the proceeds of such enforcement or setoff or any part thereof aresubsequently invalidated, declared to be fraudulent or preferential, set asideand/or required to be repaid to a trustee, receiver or any other party underany bankruptcy law, state or federal law, common law or equitable cause, thento the extent of such recovery, the obligation or part thereof originallyintended to be satisfied will be revived and continue in full force and effectas if such payment had not been made or such enforcement or setoff had notoccurred.

##  

# **8.****             SUBORDINATION**.

#  

## **8.1****          Agreement to Subordinate**.

##  

###### **(A)****          Termsof Subordination**.  The Lender andthe Borrower agree that the lien granted by the Borrower hereunder to securethe Liabilities is subordinate, to the extent and in the manner set forth inthis Agreement, to the lien of the First Mortgage Bond Indenture and any andall of the bonds outstanding from time to time thereunder (the “SeniorObligations”).  Notwithstanding theorder or time of creation, acquisition, attachment, or the order, time, ormanner of perfection, or the order or time of filing or recordation of anydocument or instrument, or other method of perfecting a security interest orLien on and against any of the Collateral or other assets of the Borrower, theLender agrees that any Lien or security interest now or hereafter existing inand to the Collateral in favor of the Lender shall be and at all times remainsubject and subordinate in all respects to any Lien or security interest whichmay now or hereafter at any time or from time to time be granted pursuant tothe First Mortgage Bond Indenture on or in any or all of the Collateral assecurity for the Senior Obligations.

######  

###### **(B)****          FurtherAssurances**.  The Lender and theBorrower will, at the Borrower’s expense and at any time and from time to time,promptly execute and deliver all further instruments and documents, and takeall further action, that may be necessary, or that the Bond Trustee mayreasonably request, in order to protect any right or interest granted orpurported to be granted by this Agreement or to enable the Bond Trustee toexercise and enforce its rights and remedies under this Agreement.

######  

## **8.2****          Administrationof Collateral.**** **TheBond Trustee shall have complete and sole discretion in, and shall not beliable to the Lender for, determining how, when and in what manner the BondTrustee administers the Senior Obligations or forecloses or otherwise realizesupon the Collateral or exercises any rights or remedies of a secured party orlien creditor or any other rights with respect to the Collateral or otherwisetakes any action with respect thereto. Without in any way limiting the foregoing, the Lender specificallyacknowledges and agrees that the Bond Trustee may take such action as it deemsappropriate to enforce the Senior Obligations and its Lien on and securityinterest in the Collateral, whether or not such action is beneficial ordetrimental to the Lender’s interest. The Lender agrees that it shall not take any action to foreclose orotherwise realize upon the Collateral or exercise any rights or remedies of asecured party with respect to the Collateral, unless and until the SeniorObligations have been paid in full. Also without in any way limiting the foregoing, the Lender herebyexpressly waives and

 

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## releases any andall rights to have the Collateral or any part thereof marshaled upon anyforeclosure, sale or other realization thereon.  There shall be no obligation on the part of the Bond Trustee, atany time, to resort for payment of the Senior Obligations to any obligorthereon or any guarantor thereof, or to any other person or corporation, theirproperties or estates, or to resort to any other collateral or any other rightsor remedies whatsoever, and the Bond Trustee shall have the right to forecloseor otherwise realize upon the Collateral upon which it has a security interestirrespective of whether or not other proceedings or steps are pending seekingresort to or realization upon or from any of the foregoing.

##  

## **8.3****          Delivery of Proceeds of****Collateral. **So long as the Senior Obligationsare outstanding, the Lender will without demand or request being made upon itdeliver any parts or proceeds of the Collateral which shall come into itspossession, control or custody to the Bond Trustee for application as set forthin the First Mortgage Bond Indenture.

##  

## **8.4****          Agreement Not to Contest.  **The Lender hereby agrees that it shallnot contest the validity, perfection, priority or enforceability of anysecurity interest or Lien granted to the Bond Trustee pursuant to the FirstMortgage Bond Indenture.

##  

## **8.5****          Release of Collateral. **The Lender agrees that in the event theBond Trustee shall come into the possession, custody and control of anyproperty or assets of the Borrower as the result of any security interestgranted to secure the Senior Obligations, the Bond Trustee may, to the extentthe Bond Trustee does not apply the same to the payment or partial payment ofthe Senior Obligations, release the same to or upon the order of the Borrower,without notice, or accounting for the same, to the Lender or any other person,firm or corporation whomsoever, it being specifically understood and agreedthat any property so released shall remain subject to all claims of the Lenderand the Bond Trustee thereto in accordance herewith.  Without limiting the foregoing, the Lender acknowledges andagrees that the Bond Trustee may from time to time in its discretion releaseproceeds of the Collateral in which the Bond Trustee has a security interest tothe Borrower or otherwise deal with the Collateral in which the Bond Trusteehas a security interest, without any notice or accounting to the Lenderwhatsoever.

##  

## **8.6****          Release of Security Interest. **TheLender agrees that, whether or not a default has occurred in payment of theLoans, its Lien on the Collateral or any portion thereof shall automatically bereleased ipso facto as to all indebtedness secured thereby owing to the Lenderif, when and to the same extent that the Bond Trustee releases its Lien on suchCollateral or portion thereof.  TheLender further hereby agrees to execute and deliver such further instrumentsand do such further acts as the Borrower or the Bond Trustee may deem necessaryor proper to carry out more effectively the foregoing.

##  

## **8.7****          Obligations under thisAgreement Not Affected****. **Exceptas specifically described in this Agreement, nothing contained in this Agreementor in any Note is intended to or impairs, as between the Borrower, itscreditors other than the Bond Trustee and the Lender, the obligations of theBorrower, which are absolute and unconditional, to pay to the Lender theLiabilities as and when they become due and payable in accordance with theterms of this Agreement, subject, however, to the terms of this Section 8.  Except as specifically described in thisAgreement, nothing contained in this Agreement or in any Note is intended to oraffects the relative rights of the Lender and creditors of the Borrower otherthan the Bond Trustee.

 

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## **8.8****          Bankruptcy. **The Lender agrees that in the eventbankruptcy proceedings are instituted by or against the Borrower, the BondTrustee may consent to the use of cash collateral or provide postpetitionfinancing under section 364 of the United States Bankruptcy Code, 11 U.S.C. §364, to the Borrower on such terms and conditions and in such amounts as theBond Trustee, in its sole discretion, may decide.  The Lender waives any rights it may have under applicable law toobject to such use of such cash collateral or postpetition financing.

##  

## **8.9****          Third Party Beneficiary**.  The BondTrustee shall be a third party beneficiary of this Section 8.

##  

# **9.****             MISCELLANEOUS**.

#  

## **9.1****          Amendments and Waivers.**  No modification or waiver of, nor any consent to the departure bythe Borrower from, any provision of this Agreement will be effective unless itis in writing from the Lender and then such modification, waiver or consentwill be effective only on the specific instance and for the purpose for whichit is given.

##  

## **9.2****          Severability****.**  Wherever possible, each provision of thisAgreement must be interpreted in such manner as to be effective and valid underapplicable law, but if any provision of this Agreement is prohibited by orinvalid under applicable law, such provision is ineffective only to the extentof such prohibition or invalidity, without invalidating the remainder of suchprovisions or the remaining provisions of this Agreement.

##  

## **9.3****          Notices.**  Except as otherwise expresslyprovided in this Agreement, any notice required or desired to be served, givenor delivered under this Agreement must be in writing and is deemed to have beenvalidly served, given or delivered (i) three days after deposit in theUnited States mails, with proper postage prepaid, (ii) when sent afterreceipt of confirmation if sent by telecopy or other similar facsimiletransmission, (iii) one Business Day after deposit with a reputableovernight courier with all charges prepaid or (iv) when delivered, if handdelivered by messenger, all of which must be properly addressed to the party tobe notified and sent to the address or number indicated on the signature pagehereof or to such other address or number as each party designates to the otherin the manner prescribed in this Section 9.3.

##  

## **9.4****          Counterparts.**  This Agreement and any amendment orsupplement to this Agreement or any waiver granted in connection with this Agreementmay be executed in any number of counterparts and by the different parties onseparate counterparts and each such counterpart is deemed to be an original,but all such counterparts together constitute but one and the same Agreement.

##  

## **9.5****          Prior Agreements****.**  The terms and conditions set forth in thisAgreement supersede all prior agreements, discussions, correspondence,memoranda and understandings (whether written or oral) of the Borrower and theLender concerning or relating to the subject matter of this Agreement.

##  

## **9.6****          Successors and Assigns.** This Agreement is binding upon the Borrower and the Lender andtheir respective successors and assigns and inures to the benefit of theBorrower and the Lender and their respective successors and permitted assigns.  The Borrower has no right to assign itsrights or delegate its duties under this Agreement, without the prior writtenconsent

 

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## of theLender.  The Lender has the right toassign to any Affiliate of the Lender all or a portion of its rights andobligations under this Agreement.  Uponany such assignment by the Lender, (i) the assignee becomes a party tothis Agreement and, to the extent of such assignment, has all rights andobligations of the Lender under this Agreement and (ii) the Lender will,to the extent of such assignment, relinquish its rights and be released fromits obligations under this Agreement. The Borrower and the Lender agree to execute and deliver such documents,and to take such other actions, as the other party may reasonably request toaccomplish the foregoing.

##  

## **9.7****          CHOICE OF LAW.** THIS AGREEMENT SHALL BE GOVERNEDBY AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE INTERNAL LAWS OF THESTATE OF DELAWARE.

##  

*  * *  *  *

 

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INWITNESS WHEREOF, the parties have executed this Agreement as of the day andyear first above written.

 

 
|   | **LOUISVILLE GAS AND ELECTRIC  COMPANY** |
|--------|------------------------------------------|
|   |                                     |   |
|   | Address:                                 | 220 West Main  Street |
|   |                                     | Louisville,  Kentucky 40202 |
|   |                                     | Attn:   Treasurer |
|   | Facsimile:                               | 502-627-4742 |
|   |                                     |   |
|   |                                     |   |
|   | By:                                      |   |
|   | Name:                                    |   |
|   | Title:                                   |   |
|   |                                     |   |
|   |                                     |   |
|   | **FIDELIA CORPORATION**                  |
|   |                                     |   |
|   | Address:                                 | 300 Delaware  Avenue |
|   |                                     | Wilmington,  Delaware 19801 |
|   |                                     | Attn:   Executive  Vice President |
|   | Facsimile:                               | 302-417-5913 |
|   |                                     |   |
|   |                                     |   |
|   | By:                                      |   |
|   | Name:                                    |   |
|   | Title:                                   |   |
|        |                                          |  |  |  |  |  |

 

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**EXHIBIT****A**

 

**FORMOF NOTE**

 
| $                      | Date:                   |
|---------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------|

 

FOR VALUE RECEIVED,on                         (the“Maturity Date”) the undersigned, LOUISVILLE GAS AND ELECTRIC COMPANY, aKentucky corporation (the “Borrower”), unconditionally promises to payto FIDELIA CORPORATION (the “Lender”), at the Lender’s office at 300Delaware Avenue, Wilmington, Delaware 19801, or at such other place as the holder of this Note may from timeto time designate in writing, in lawful money of the United States of Americaand immediately available funds, the principal sum of$                         .  This Note is referred to in and was executedand delivered under the Loan and Security Agreement dated as of August 15, 2003(the “Loan Agreement”) between the Borrower and the Lender, to whichreference is made for a more complete statement of the terms and conditionsunder which the loan evidenced by this Note was made and is to be repaid.  Capitalized terms used in this Note and nototherwise defined have the meanings assigned to such terms in the LoanAgreement.

 

Unless otherwise paid sooner under the provisions of Section2.6(c) or 7.1 of the Loan Agreement, the principal indebtednessrepresented by this Note is payable on the Maturity Date.  The Borrower further promises to payinterest on the outstanding principal amount of the indebtedness represented bythis Note from the date of this Note until payment in full at the applicablerates determined in accordance with Section 2.3(A) of the LoanAgreement.  Except as otherwise providedin the Loan Agreement, interest is payable quarterly in arrears not later thanthe last Business Day of each calendar quarter and is computed on the basis ofa 360-day year consisting of twelve 30-day months.

 

If payment under this Note becomes due and payable ona Business Day, the due date of such payment is extended to the next succeedingBusiness Day.  In no contingency orevent whatsoever will interest charged under this Note, however such interestmay be characterized or computed, exceed the highest rate permissible under anylaw which a court of competent jurisdiction, in a final determination, deemsapplicable to this Note.  In the eventthat such a court determines that the Lender has received interest under thisNote in excess of the highest rate applicable to this Note, any such excessinterest collected by the Lender is deemed to have been a repayment ofprincipal and be so applied.

 

The obligations of the Borrower under this Note issecured by certain collateral as and to the extent set forth in the LoanAgreement.  This Note is subject toprepayment at the option of the Borrower as provided in the Loan Agreement.

 

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**DEMAND, PRESENTMENT, PROTEST AND NOTICE OF NONPAYMENT ANDPROTEST ARE WAIVED BY THE BORROWER.**

 

This Note has been delivered and is deemed to havebeen made, at Wilmington, Delaware and will be interpreted in accordance withthe internal law as (as opposed to conflicts of law provisions) and decisionsof the State of Delaware.  Wheneverpossible each provision of this Note will be interpreted in such manner as tobe effective and valid under applicable law, but if any provision of this Noteis prohibited by or invalid under applicable law, such provision will beineffective to the extent of such prohibition or invalidity, withoutinvalidating the remainder of such provision or the remaining provisions ofthis Note.  Whenever in this Note referenceis made to the Lender or the Borrower, such reference is deemed to include, asapplicable, a reference to their respective successors and assigns.  The provisions of this Note are binding uponand inure to the benefit of said successors and assigns.  The Borrower’s successors and assigns include,without limitation, a receiver,  trusteeor debtor-in-possession of or for the Borrower.

 
|   | **LOUISVILLE GAS AND ELECTRIC COMPANY** |   |
|--------|-----------------------------------------|--------|
|   |                                    |   |
|   |                                    |   |
|   | By:                                     |   |   |
|   |                                    | Title: |
|        |                                         |        |  |  |  |

 

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**NOTE**

 
| $100,000,000.00 |   | Date:  August 15, 2003 |
|-----------------|--------|-----------------------------|

 

FOR VALUE RECEIVED, on August 15, 2013 (the “MaturityDate”) the undersigned, LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentuckycorporation (the “Borrower”), unconditionally promises to pay to FIDELIACORPORATION (the “Lender”), at the Lender’s office at 300 DelawareAvenue, Wilmington, Delaware  19801, orat such other place as the holder of this Note may from time to time designatein writing, in lawful money of the United States of America and immediately availablefunds, the principal sum of $100,000,000. This Note is referred to in and was executed and delivered under theLoan and Security Agreement dated as of August 15, 2003 (the “Loan Agreement”)between the Borrower and the Lender, to which reference is made for a morecomplete statement of the terms and conditions under which the loan evidencedby this Note was made and is to be repaid. Capitalized terms used in this Note and not otherwise defined have themeanings assigned to such terms in the Loan Agreement.

 

Unless otherwise paid sooner under the provisions of Section2.6(c) or 7.1 of the Loan Agreement, the principal indebtednessrepresented by this Note is payable on the Maturity Date.  The Borrower further promises to payinterest on the outstanding principal amount of the indebtedness represented bythis Note from the date of this Note until payment in full at the applicablerates determined in accordance with Section 2.3(A) of the LoanAgreement.  Except as otherwise providedin the Loan Agreement, interest is payable quarterly in arrears not later thanthe last Business Day of each calendar quarter and is computed on the basis ofa 360-day year consisting of twelve 30-day months.

 

If payment under this Note becomes due and payable ona Business Day, the due date of such payment is extended to the next succeedingBusiness Day.  In no contingency orevent whatsoever will interest charged under this Note, however such interestmay be characterized or computed, exceed the highest rate permissible under anylaw which a court of competent jurisdiction, in a final determination, deemsapplicable to this Note.  In the eventthat such a court determines that the Lender has received interest under thisNote in excess of the highest rate applicable to this Note, any such excessinterest collected by the Lender is deemed to have been a repayment ofprincipal and be so applied.

 

The obligations of the Borrower under this Note issecured by certain collateral as and to the extent set forth in the LoanAgreement.  This Note is subject toprepayment at the option of the Borrower as provided in the Loan Agreement.

 

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**DEMAND, PRESENTMENT, PROTEST AND NOTICE OF NONPAYMENT ANDPROTEST ARE WAIVED BY THE BORROWER.**

 

This Note has been delivered and is deemed to havebeen made, at Wilmington, Delaware and will be interpreted in accordance withthe internal law as (as opposed to conflicts of law provisions) and decisionsof the State of Delaware.  Wheneverpossible each provision of this Note will be interpreted in such manner as tobe effective and valid under applicable law, but if any provision of this Noteis prohibited by or invalid under applicable law, such provision will beineffective to the extent of such prohibition or invalidity, withoutinvalidating the remainder of such provision or the remaining provisions ofthis Note.  Whenever in this Notereference is made to the Lender or the Borrower, such reference is deemed toinclude, as applicable, a reference to their respective successors andassigns.  The provisions of this Noteare binding upon and inure to the benefit of said successors and assigns.  The Borrower’s successors and assignsinclude, without limitation, a receiver, trustee or debtor-in-possession of or for the Borrower.

 
|   | **LOUISVILLE GAS AND ELECTRIC COMPANY** |   |
|--------|-----------------------------------------|--------|
|   |                                    |   |
|   |                                    |   |
|   | By:                                     |   |   |
|   |                                    | Title  |
|        |                                         |        |  |  |

 

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