EXHIBIT
4.27


 


LOAN AND SECURITY
AGREEMENT


 


Dated as of August
15, 2003


 


between


 


LOUISVILLE GAS AND
ELECTRIC COMPANY


 


and


 


FIDELIA
CORPORATION


 

















 


TABLE OF
CONTENTS


 


	
  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, as
borrower (the “Borrower”), and FIDELIA CORPORATION, a Delaware
corporation, as lender (the “Lender”).


 


W I T N E S S E T H:


 


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


 


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


 


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


 


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


 


1.             DEFINITIONS.


 


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


 


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


 


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


 


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the Borrower and delivered to the Lender and whose authority has not been
revoked prior to such time.


 


“Bond Trustee” means BNY Midwest Trust Company
as trustee under the First Mortgage Bond Indenture, or any successor trustee
thereunder.


 


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


 


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


 


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


 


“Collateral” has the meaning set forth in Section
4.1.


 


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


 


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


 


“Equipment” has the meaning set forth in the
Code and includes, without limitation, any and all of the Borrower’s now owned
or hereafter acquired machinery, equipment, furniture, furnishings and all
tangible personal property similar to any of the foregoing (other than
Inventory), together with all improvements, accessions and appurtenances
thereto and any proceeds of any of the foregoing, including insurance proceeds
and condemnation awards, excluding, however, any Equipment which is not subject
to a Lien now or at any time hereafter pursuant to the First Mortgage Bond
Indenture.


 


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


 


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


 


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


 


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


 


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


 


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


 


“Lien” means any mortgage, deed of trust,
pledge, hypothecation, assignment, collateral deposit arrangement, security
interest, encumbrance for the payment of money, lien (statutory or other),
preference, right of setoff, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, or the
interest of a lessor under a capital lease.


 


“Loan” has the meaning set forth in Section
2.1.


 


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 “Material
Adverse 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 performed
any of its obligations under this Agreement or the rights or remedies of the
Lender under this Agreement.


 


“Note” has the meaning set forth in Section
2.4.


 


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


 


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


 


1.2          Accounting Terms.  Any accounting terms used in this Agreement
which are not specifically defined in this Agreement have the meanings
customarily 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 the
meanings provided by the Code to the extent the same are used or defined in the
Code.


 


1.4          Computation of Time Periods.  In this Agreement in the computation of periods of time from a
specified 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 affect
the interpretation or meaning of any provision of this Agreement.  Any Section or clause references are to this
Agreement, unless otherwise specified. 
References in this Agreement or any other agreement include this
Agreement and other agreements as the same may be amended, restated,
supplemented or otherwise modified from time to time pursuant to the provisions
hereof or thereof.  A reference to any
law, statute or regulation shall mean that law, statute or regulation as it may
be amended, supplemented or otherwise modified from time to time, and any
successor law, statute or regulation.


 


2.             TERM LOANS.


 


2.1          Loans.  The Lender, at its discretion, may make
available to the Borrower term loans (the “Loans”) from time to time pursuant
to this Agreement, upon telephonic or written communication of a borrowing
request from the Borrower as provided in Section 2.2.


 


2.2          Request for Loans.  The Borrower may from time to time make
requests 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 final
maturity not to be less than one year from the Borrowing Date, (iii) specify
the 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 floating
rate, (v) specify the dates on which interest is to be paid, and (vi) specify
the


 


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number of the
account and the name and address of the depository institution to which the
proceeds of the Loan are to be transferred on the Borrowing Date.  Each Borrowing Notice may be given
telephonically or in writing.  Each such
request for a Loan is subject to acceptance by the Lender, in its sole
discretion.


 


2.3          Interest.


 


(A)          Interest
Rate.  The interest rate payable by
the Borrower on any Loan shall be set at such interest rate as the Borrower and
the Lender shall agree, but in no event greater than the lowest of (i) the
effective cost of capital of E.ON AG, (ii) the effective cost of capital of the
Lender and (iii) the Borrower’s effective cost of capital determined by
reference to the effective cost of a direct borrowing by the Borrower from a
nonassociate for a comparable term loan that could be entered into at such
time.  Such interest rate may be
determined as a fixed interest rate or a floating rate, as specified by the
Borrower in the Borrowing Notice.


 


(B)          Interest
Payments.  Accrued but unpaid
interest on each Loan is payable in arrears on dates agreed to by the Borrower
and the Lender as specified in the Borrowing Notice and upon payment in full of
such Loan.  Interest on the Loans is
computed on the basis of a 360-day year consisting of twelve 30-day months.


 


(C)          Highest
Lawful Rate.  In no contingency or
event whatsoever will interest charged on the Loans, however, such interest may
be characterized or computed, exceed the highest rate permissible under any law
which a court of competent jurisdiction, in a final determination, deems
applicable to the Loans. In the event that such a court determines that the
Lender has received interest under the Loans in excess of the highest rate
applicable to the Loans, any such excess interest collected by the Lender is
deemed to have been a repayment of principal and will be so applied.


 


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


 


2.5          Closings.  Not later than 11:30 A.M. (New York City
local time) on the Borrowing Date for any Loan, the Borrower will deliver to
the 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 the
Loan proceeds by transfer of immediately available funds for credit to the
Borrower’s account specified in the Borrowing Notice.


 


2.6          Payments.


 


(A)          Place
of Payments.  The Borrower will make
each payment under this Agreement and under the Notes not later than
2:00 p.m. (New York time) on the day when due to the Lender at its address
set forth in Section 9.3 in immediately available funds.  The Borrower’s


 


4

















 


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


 


(B)          Timing
of Payments.  If any payment of any
interest or fees owing under this Agreement falls due on a day that is not a
Business Day, then such due date is extended to the next following Business
Day.


 


(C)          Optional
Prepayments.  On any interest
payment date, and with at least three business day’s prior written notice, the
Borrower shall be entitled to prepay any amount of the loan outstanding,
provided such payment is not less than $1,000,000 and, provided further, the
Borrower shall pay a prepayment charge equal to the present value of the
difference between (i) the interest payable provided in this loan agreement and
(ii) the interest payable at the prevailing interest rate at the time of
prepayment, for the period from the date of prepayment through the final
maturity date,  which difference, if
negative, shall be deemed to be zero. The present value will be determined
using the prevailing interest rate at the time of the prepayment as the
discount rate.


 


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


 


3.             CONDITIONS OF ADVANCES.


 


Notwithstanding
any other provisions contained in this Agreement to the contrary, the making of
each 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 and
substance satisfactory to the Lender, and delivered on or prior to the
applicable Borrowing Date:


 


(i)            This
Agreement, duly executed by the Borrower.


 


(ii)           The
Note, evidencing such Loan, duly executed by the Borrower.


 


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


 


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


 


(v)           A
signature authorization certificate for the Borrower.


 


(vi)          Such
other documents as the Lender may reasonably request.


 


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3.2          No Default.  No Default or Event of Default has occurred
and is continuing.


 


3.3          Reaffirmation of Representations and Warranties
..  The representations and warranties
contained in Section 5 are true and correct in all material aspects on
and as of the Borrowing Date.


 


4.             COLLATERAL.


 


4.1          Security Interest.  To secure
payment of the Liabilities and performance of its obligations under this
Agreement and the Notes, the Borrower grants, mortgages, hypothecates and
pledges to the Lender a continuing lien upon and security interest in all of
the Borrower’s right, title and interest in the Collateral, wherever located,
whether now or hereafter existing, owned, licensed, leased (to the extent of
the Borrower’s leasehold interest in such property), consigned (to the extent
of 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) the
Equipment;  (ii) all insurance proceeds of or
relating thereto, (iii) all of the Borrower’s books and records relating
to any of the foregoing; and (iv) all accessions and additions to,
substitutions for, and replacements, products and proceeds of any of the
foregoing.


 


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 the
continuation of an Event of Default, with respect to any item of Collateral or
the 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 under
this Agreement.


 


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


 


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


 


4.5          Termination
of Security Interest and Liens. 
The Lender’s security interest and other liens in, on and to the
Collateral terminates when all the Liabilities have been paid in full and this
Agreement has been terminated, at which time the Lender will reassign and
redeliver (or


 


6

















 


cause to be
reassigned and redelivered) to the Borrower, or to such Person as the Borrower
designates, against receipt, such of the Collateral (if any) assigned by the
Borrower to the Lender (or otherwise held by the Lender) as has not been sold
or otherwise applied by the Lender under the terms of this Agreement and is
still held by it under this Agreement, together with appropriate instruments of
reassignment and release.  Any such
reassignment is without recourse upon or representation or warranty by the
Lender and will be at the Borrower’s cost and expense.


 


5.             REPRESENTATIONS
AND WARRANTIES.


 


The
Borrower represents and warrants that as of the date of this Agreement and as
of each Borrowing Date.


 


5.1          Existence.  The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Kentucky and is duly qualified as a foreign entity and is in
good standing in all jurisdictions where the nature and extent of the business
transacted by it or the ownership of its assets makes such qualification
necessary, except for those jurisdictions in which the failure so to qualify or
to be in good standing would not have a Material Adverse Effect.


 


5.2          Authority.  The execution and delivery by the Borrower
of this Agreement and the Notes and the performance of the Borrower’s
obligations 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 other
governing body; (iii) are not in contravention of the terms of the
Borrower’s certificate of incorporation or bylaws or of any material indenture,
agreement or undertaking to which the Borrower is a party or by which the
Borrower or any of its property is bound; (iv) does not require any
consent, registration or approval of any Governmental Authority, which has not
been obtained; (v) does not contravene any material contractual or
governmental 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 existing
material indenture, mortgage, deed of trust, loan or credit agreement or other
material agreement or instrument to which the Borrower is a party or by which
it 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 the
Borrower in accordance with their respective terms.


 


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


 


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5.5          Collateral.  Except for Permitted Liens and as otherwise
provided in Section 8.5, all of the Collateral is and will continue to
be owned by the Borrower free and clear of all Liens, claims and encumbrances.


 


5.6          Chief
Executive Office Jurisdiction of Incorporation.  As of the date hereof, the principal place
of business and chief executive office of the Borrower is located at 220 West
Main Street, Louisville, Kentucky 40202 and the Borrower has been duly
incorporated in the Commonwealth of Kentucky.


 


5.7          Other Corporate Names.  The Borrower has not used any other
corporate or fictitious names in the past five years.


 


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


 


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


 


5.10        Compliance with Laws and Regulations.  The execution and delivery by the Borrower
of this Agreement and the performance of the Borrower’s obligations under this
Agreement 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 local
governmental authorities relating to the business, operations and the assets of
the Borrower, including, without limitation, Regulations T, U and X of the
Board of Governors of the Federal Reserve System, except for laws, orders,
regulations and ordinances the violation of which are not likely to have a
Material Adverse Effect.


 


6.             COVENANTS.


 


The
Borrower covenants and agrees that, so long as any of the Liabilities remain
outstanding:


 


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


 


(A)          SEC
Reports.  Copies of annual reports
and quarterly reports filed by the Borrower with the Securities and Exchange
Commission on Forms 10-K and 10-Q, within 20 Business Days of the date of
filing of such report;


 


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


 


8

















 


(C)          Notice
of Change of Name.  Notice in
writing to the Lender, as soon as practicable and in any event within five days
after the occurrence of any change in the name, address or jurisdiction of
incorporation of the Borrower or the location of the books and records of the
Borrower; and


 


(D)          Other
Information.  With reasonable
promptness, such other business or financial data as the Lender may reasonably
request.


 


The Lender will take reasonable efforts to keep such
information, and all information acquired as a result of any inspection
conducted in accordance with Section 6.2 (and any other information
provided to the Lender under this Agreement), confidential, provided that the
Lender may communicate such information (i) in
accordance with the Borrower’s written authorization, (ii) to
any regulatory authority having jurisdiction over the Lender, (iii) to any other Person in connection with the
exercise of the Lender’s rights under this Agreement, (iv) to
any Person in any litigation in which the Lender is a party or (v) to any other Person if the Lender believes in
its sole discretion that disclosure is necessary in connection with any legal
process or informal investigative demand, whether issued by a court, judicial
or administrative or legislative body or committee or other governmental
authority.  Notwithstanding the
foregoing, information will not be deemed to be confidential to the extent such
information (a) is available in the public
domain, (b) becomes available in the public
domain other than as a result of unauthorized disclosure by the Lender or (c) is acquired from a Person not known by the
Lender 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 in
writing, has the right, from time to time after the date of this Agreement, to
call at the Borrower’s place or places of business (or any other place where
the Collateral or any information relating to the Collateral is kept or
located) during reasonable business hours and, without unreasonable hindrance
or delay, (i) to inspect, audit, check and make copies of and extracts
from the Borrower’s books, records, journals, orders, receipts and any
correspondence and other data relating to the Borrower’s business or to any
transactions between the parties thereto, (ii) to make such verification
concerning the Collateral as the Lender may consider reasonable under the
circumstances and (iii) to discuss the affairs, finances and business of
the 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 its
operations to, the same general lines of business as that presently conducted
by it or other businesses reasonably related thereto and (iii) comply with
all laws, orders, regulations and ordinances of any federal, foreign, state or
local governmental authority, except for such laws, orders, regulations and
ordinances the violation of which has no reasonable likelihood of having a
Material 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:


 


9

















 


(A)          the
Borrower fails to pay any of the principal of or interest on the Loans, or any
Commitment Fees or other amounts due hereunder, within 10 Business Days after
such amounts are due (whether by scheduled maturity, acceleration or
otherwise);


 


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


 


(C)          any
warranty or representation now or hereafter made by the Borrower under this
Agreement is untrue or incorrect in any material respect when made;


 


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


 


(E)           the
Borrower voluntarily or involuntarily dissolves or is dissolved;


 


(F)           the
Borrower becomes insolvent or fails generally to pay its debts as they become
due;


 


(G)          the
Lender shall cease to have a valid, perfected security interest in all or any
material portion of the Collateral; or


 


(H)          E.ON
AG shall cease to own, directly or indirectly, at least 80% of the voting
capital stock of the Borrower;


 


then the Lender, upon notice to the Borrower, may
declare the Loans to be immediately due and payable, whereupon the Loans will
become immediately due and payable; provided, that if an Event of Default
described in Section 7.1(D) exists or occurs, the Loans shall
automatically, without notice of any kind, become immediately due and payable.


 


7.2          Rights and Remedies Generally.  Subject to the subordination provisions of Section
8, upon the occurrence and continuance of an Event of Default, the Lender
has, 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 other
applicable laws, all of which rights and remedies are cumulative, and none
exclusive, to the extent permitted by law. 
Any single or partial exercise by the Lender of any right or remedy for
a default or breach of any term, covenant, condition or agreement in this
Agreement does not affect its rights and does not waive, alter, affect, or
prejudice any other right or remedy to which the Lender may be lawfully
entitled for the same default or breach.


 


7.3          Waiver of Demand.  Demand, presentment, protest and notice of
nonpayment are waived by the Borrower. 
The Borrower also waives the benefit of all valuation, appraisal
and exemption laws.


 


10

















 


7.4          Marshalling;
Payments Set Aside. 
The Lender is under no obligation to marshall any assets in favor of the
Borrower or any other party or against or in payment of any or all of the
Liabilities.  To the extent that the
Borrower makes a payment or payments to the Lender or the Lender enforces its
security interests or exercises its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under
any bankruptcy law, state or federal law, common law or equitable cause, then
to the extent of such recovery, the obligation or part thereof originally
intended to be satisfied will be revived and continue in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.


 


8.             SUBORDINATION.


 


8.1          Agreement to Subordinate.


 


(A)          Terms
of Subordination.  The Lender and
the Borrower agree that the lien granted by the Borrower hereunder to secure
the Liabilities is subordinate, to the extent and in the manner set forth in
this Agreement, to the lien of the First Mortgage Bond Indenture and any and
all of the bonds outstanding from time to time thereunder (the “Senior
Obligations”).  Notwithstanding the
order or time of creation, acquisition, attachment, or the order, time, or
manner of perfection, or the order or time of filing or recordation of any
document or instrument, or other method of perfecting a security interest or
Lien on and against any of the Collateral or other assets of the Borrower, the
Lender agrees that any Lien or security interest now or hereafter existing in
and to the Collateral in favor of the Lender shall be and at all times remain
subject and subordinate in all respects to any Lien or security interest which
may now or hereafter at any time or from time to time be granted pursuant to
the First Mortgage Bond Indenture on or in any or all of the Collateral as
security for the Senior Obligations.


 


(B)          Further
Assurances.  The Lender and the
Borrower 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 take
all further action, that may be necessary, or that the Bond Trustee may
reasonably request, in order to protect any right or interest granted or
purported to be granted by this Agreement or to enable the Bond Trustee to
exercise and enforce its rights and remedies under this Agreement.


 


8.2          Administration
of Collateral.  The
Bond Trustee shall have complete and sole discretion in, and shall not be
liable to the Lender for, determining how, when and in what manner the Bond
Trustee administers the Senior Obligations or forecloses or otherwise realizes
upon the Collateral or exercises any rights or remedies of a secured party or
lien creditor or any other rights with respect to the Collateral or otherwise
takes any action with respect thereto. 
Without in any way limiting the foregoing, the Lender specifically
acknowledges and agrees that the Bond Trustee may take such action as it deems
appropriate to enforce the Senior Obligations and its Lien on and security
interest in the Collateral, whether or not such action is beneficial or
detrimental to the Lender’s interest. 
The Lender agrees that it shall not take any action to foreclose or
otherwise realize upon the Collateral or exercise any rights or remedies of a
secured party with respect to the Collateral, unless and until the Senior
Obligations have been paid in full. 
Also without in any way limiting the foregoing, the Lender hereby
expressly waives and


 


11

















 


releases any and
all rights to have the Collateral or any part thereof marshaled upon any
foreclosure, sale or other realization thereon.  There shall be no obligation on the part of the Bond Trustee, at
any time, to resort for payment of the Senior Obligations to any obligor
thereon or any guarantor thereof, or to any other person or corporation, their
properties or estates, or to resort to any other collateral or any other rights
or remedies whatsoever, and the Bond Trustee shall have the right to foreclose
or otherwise realize upon the Collateral upon which it has a security interest
irrespective of whether or not other proceedings or steps are pending seeking
resort to or realization upon or from any of the foregoing.


 


8.3          Delivery of Proceeds of Collateral.  So long as the Senior Obligations
are outstanding, the Lender will without demand or request being made upon it
deliver any parts or proceeds of the Collateral which shall come into its
possession, control or custody to the Bond Trustee for application as set forth
in the First Mortgage Bond Indenture.


 


8.4          Agreement Not to Contest.  The Lender hereby agrees that it shall
not contest the validity, perfection, priority or enforceability of any
security interest or Lien granted to the Bond Trustee pursuant to the First
Mortgage Bond Indenture.


 


8.5          Release of Collateral.  The Lender agrees that in the event the
Bond Trustee shall come into the possession, custody and control of any
property or assets of the Borrower as the result of any security interest
granted to secure the Senior Obligations, the Bond Trustee may, to the extent
the Bond Trustee does not apply the same to the payment or partial payment of
the 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 agreed
that any property so released shall remain subject to all claims of the Lender
and the Bond Trustee thereto in accordance herewith.  Without limiting the foregoing, the Lender acknowledges and
agrees that the Bond Trustee may from time to time in its discretion release
proceeds of the Collateral in which the Bond Trustee has a security interest to
the Borrower or otherwise deal with the Collateral in which the Bond Trustee
has a security interest, without any notice or accounting to the Lender
whatsoever.


 


8.6          Release of Security Interest.  The
Lender agrees that, whether or not a default has occurred in payment of the
Loans, its Lien on the Collateral or any portion thereof shall automatically be
released ipso facto as to all indebtedness secured thereby owing to the Lender
if, when and to the same extent that the Bond Trustee releases its Lien on such
Collateral or portion thereof.  The
Lender further hereby agrees to execute and deliver such further instruments
and do such further acts as the Borrower or the Bond Trustee may deem necessary
or proper to carry out more effectively the foregoing.


 


8.7          Obligations under this
Agreement Not Affected.  Except
as specifically described in this Agreement, nothing contained in this Agreement
or in any Note is intended to or impairs, as between the Borrower, its
creditors other than the Bond Trustee and the Lender, the obligations of the
Borrower, which are absolute and unconditional, to pay to the Lender the
Liabilities as and when they become due and payable in accordance with the
terms of this Agreement, subject, however, to the terms of this Section 8.  Except as specifically described in this
Agreement, nothing contained in this Agreement or in any Note is intended to or
affects the relative rights of the Lender and creditors of the Borrower other
than the Bond Trustee.


 


12

















 


8.8          Bankruptcy.  The Lender agrees that in the event
bankruptcy proceedings are instituted by or against the Borrower, the Bond
Trustee may consent to the use of cash collateral or provide postpetition
financing 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 the
Bond Trustee, in its sole discretion, may decide.  The Lender waives any rights it may have under applicable law to
object to such use of such cash collateral or postpetition financing.


 


8.9          Third Party Beneficiary.  The Bond
Trustee 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 by
the Borrower from, any provision of this Agreement will be effective unless it
is in writing from the Lender and then such modification, waiver or consent
will be effective only on the specific instance and for the purpose for which
it is given.


 


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


 


9.3          Notices.  Except as otherwise expressly
provided in this Agreement, any notice required or desired to be served, given
or delivered under this Agreement must be in writing and is deemed to have been
validly served, given or delivered (i) three days after deposit in the
United States mails, with proper postage prepaid, (ii) when sent after
receipt of confirmation if sent by telecopy or other similar facsimile
transmission, (iii) one Business Day after deposit with a reputable
overnight courier with all charges prepaid or (iv) when delivered, if hand
delivered by messenger, all of which must be properly addressed to the party to
be notified and sent to the address or number indicated on the signature page
hereof or to such other address or number as each party designates to the other
in the manner prescribed in this Section 9.3.


 


9.4          Counterparts.  This Agreement and any amendment or
supplement to this Agreement or any waiver granted in connection with this Agreement
may be executed in any number of counterparts and by the different parties on
separate 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 this
Agreement supersede all prior agreements, discussions, correspondence,
memoranda and understandings (whether written or oral) of the Borrower and the
Lender 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 and
their respective successors and assigns and inures to the benefit of the
Borrower and the Lender and their respective successors and permitted assigns.  The Borrower has no right to assign its
rights or delegate its duties under this Agreement, without the prior written
consent


 


13

















 


of the
Lender.  The Lender has the right to
assign to any Affiliate of the Lender all or a portion of its rights and
obligations under this Agreement.  Upon
any such assignment by the Lender, (i) the assignee becomes a party to
this Agreement and, to the extent of such assignment, has all rights and
obligations of the Lender under this Agreement and (ii) the Lender will,
to the extent of such assignment, relinquish its rights and be released from
its 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 to
accomplish the foregoing.


 


9.7          CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF DELAWARE.


 


*  * 
*  *  *


 


14

















 


IN
WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year 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:

  	
   

  
							



 

















 


EXHIBIT A


 


FORM
OF NOTE


 


	
  $                     

  	
  Date:                  

  



 


FOR VALUE RECEIVED,
on                         (the
“Maturity Date”) the undersigned, LOUISVILLE GAS AND ELECTRIC COMPANY, a
Kentucky corporation (the “Borrower”), unconditionally promises to pay
to FIDELIA CORPORATION (the “Lender”), at the Lender’s office at 300
Delaware Avenue, Wilmington, Delaware 
19801, or at such other place as the holder of this Note may from time
to time designate in writing, in lawful money of the United States of America
and immediately available funds, the principal sum of
$                         .  This Note is referred to in and was executed
and delivered under the Loan 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 more complete statement of the terms and conditions
under which the loan evidenced by this Note was made and is to be repaid.  Capitalized terms used in this Note and not
otherwise defined have the meanings assigned to such terms in the Loan
Agreement.


 


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


 


If payment under this Note becomes due and payable on
a Business Day, the due date of such payment is extended to the next succeeding
Business Day.  In no contingency or
event whatsoever will interest charged under this Note, however such interest
may be characterized or computed, exceed the highest rate permissible under any
law which a court of competent jurisdiction, in a final determination, deems
applicable to this Note.  In the event
that such a court determines that the Lender has received interest under this
Note in excess of the highest rate applicable to this Note, any such excess
interest collected by the Lender is deemed to have been a repayment of
principal and be so applied.


 


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


 


16

















 


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


 


This Note has been delivered and is deemed to have
been made, at Wilmington, Delaware and will be interpreted in accordance with
the internal law as (as opposed to conflicts of law provisions) and decisions
of the State of Delaware.  Whenever
possible each provision of this Note will be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Note
is prohibited by or invalid under applicable law, such provision will be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Note.  Whenever in this Note reference
is made to the Lender or the Borrower, such reference is deemed to include, as
applicable, a reference to their respective successors and assigns.  The provisions of this Note are binding upon
and inure to the benefit of said successors and assigns.  The Borrower’s successors and assigns include,
without limitation, a receiver,  trustee
or debtor-in-possession of or for the Borrower.


 


	
   

  	
  LOUISVILLE GAS AND ELECTRIC COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
						



 


17

















 


NOTE


 


	
  $100,000,000.00

  	
   

  	
  Date:  August 15, 2003

  



 


FOR VALUE RECEIVED, on August 15, 2013 (the “Maturity
Date”) the undersigned, LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky
corporation (the “Borrower”), unconditionally promises to pay to FIDELIA
CORPORATION (the “Lender”), at the Lender’s office at 300 Delaware
Avenue, Wilmington, Delaware  19801, or
at such other place as the holder of this Note may from time to time designate
in writing, in lawful money of the United States of America and immediately available
funds, the principal sum of $100,000,000. 
This Note is referred to in and was executed and delivered under the
Loan 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 more
complete statement of the terms and conditions under which the loan evidenced
by this Note was made and is to be repaid. 
Capitalized terms used in this Note and not otherwise defined have the
meanings assigned to such terms in the Loan Agreement.


 


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


 


If payment under this Note becomes due and payable on
a Business Day, the due date of such payment is extended to the next succeeding
Business Day.  In no contingency or
event whatsoever will interest charged under this Note, however such interest
may be characterized or computed, exceed the highest rate permissible under any
law which a court of competent jurisdiction, in a final determination, deems
applicable to this Note.  In the event
that such a court determines that the Lender has received interest under this
Note in excess of the highest rate applicable to this Note, any such excess
interest collected by the Lender is deemed to have been a repayment of
principal and be so applied.


 


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


 


1

















 


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


 


This Note has been delivered and is deemed to have
been made, at Wilmington, Delaware and will be interpreted in accordance with
the internal law as (as opposed to conflicts of law provisions) and decisions
of the State of Delaware.  Whenever
possible each provision of this Note will be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Note
is prohibited by or invalid under applicable law, such provision will be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Note.  Whenever in this Note
reference is made to the Lender or the Borrower, such reference is deemed to
include, as applicable, a reference to their respective successors and
assigns.  The provisions of this Note
are binding upon and inure to the benefit of said successors and assigns.  The Borrower’s successors and assigns
include, without limitation, a receiver, 
trustee or debtor-in-possession of or for the Borrower.


 


	
   

  	
  LOUISVILLE GAS AND ELECTRIC COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title

  
					



 


2