Document:

EXHIBIT 10.77

 

CONTRACT OF EMPLOYMENT

 

 

THIS AGREEMENT is made
the   22    day of
June    1999 B E T W E E N:

 

(1)                                  POWERGEN UK PLC of 53 New Broad Street, London, EC2M 1JJ (“the
Company”)

 

- and -

 

(2)                                  RICHARD AITKEN-DAVIES of 131 Durham Road, London SW20 ODF (“the
Executive”)

 

IT IS HEREBY AGREED as follows:

 

1.                                       The Executive will hereafter be employed by the Company on the Terms
and Conditions of Employment set out in the Appendices and the Schedule hereto.

 

2.                                       This Agreement is governed by and shall be construed in accordance
with the Laws of England.

 

3.                                       This Agreement supersedes all previous agreements and arrangements
relating to the Executive’s employment by the Company or by any of the
Company’s predecessors in business (which shall be deemed to have been
terminated by mutual consent).

 

IN WITNESS WHEREOF this Agreement has been entered
into the day and year first before written.

 

1

 

THE APPENDICES

 

TERMS AND CONDITIONS OF EMPLOYMENT

 

 

Set out in the following Appendix I,
Appendix II and the Schedule are the terms and conditions of your
employment with the Company.

 

Copies of the Company’s Bonus Scheme, Car Scheme,
Private Health Scheme and relevant pension schemes referred to in Appendix I
and the Company’s Sick Leave Rules referred to in Appendix II will all be
available from the Company’s Group Personnel Director.

 

References to “associated company” and “associated
companies” in the Appendices or the Schedule mean:-

 

(a)                                  any subsidiary company, as defined in Section 736 of the Companies
Act 1985 (as substituted by Section 144 of the Companies Act 1989), of the
Company and

 

(b)                                 any company having an ordinary share capital (as defined in Section
832 of the Income and Corporation Taxes Act 1988) of which not less than 25 per
cent is owned directly or indirectly by the Company (applying the provisions of
Section 838 of the Income and Corporation Taxes Act 1988 in the determination
of ownership).

 

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APPENDIX I

 

 

1.                                       Pay and Benefits

 

1.1                                 Salary

 

(A)                                   Your salary will initially be at the rate of £140,000 per annum.

 

(B)                                     Your salary will be payable by equal monthly instalments in arrears
on or about the 24th day of each month, and will be deemed to accrue from
day to day.  It will be reviewed from
time to time during your employment at the discretion of the Company.

 

(C)                                     Your salary will be inclusive of any other remuneration to which you
may be entitled as a Director of the Company or of any associated company, and
to give effect to this you will pay over, or procure to be paid over, to the
Company all such fees or other remuneration received by you.

 

2.                                       Bonus Scheme

 

You will be paid a bonus in accordance with
the terms of the Company’s Executive Bonus Scheme and such other
performance-related payments or incentives, all as may be agreed from time to
time.

 

3.                                       Company Car

 

You will be paid an annual payment of
£9,504 by monthly instalments of £792 in lieu of an Executive level car under
the PowerGen Contract Hire Scheme.

 

This payment will not be superannuable and
will be liable to tax. It will be subject to review once a benchmark has been
established for the cash equivalent benefit under the Executive car scheme and
you will be notified of any changes.

 

4.                                       Private Health Care

 

You will receive free cover for yourself
and your spouse and for any dependant children during the period of your
employment with the Company under the Company’s Private Health Scheme subject
to and in accordance with the rules of the Scheme from time to time.

 

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5.                                       Pension

 

5.1                                 You will be entitled to membership of the Electricity Supply Pension
Scheme (“the ESPS”) and you will be entitled to become a member of such other
schemes as the Company may introduce subject to, and in accordance with, the
terms of the ESPS and such other schemes from time to time.

 

5.2                                 While you are a member of the ESPS your employment will be
contracted out for the purposes of the Social Security Pensions Act 1975.

 

5.3                                 You will be required to make contributions in accordance with the
terms of the ESPS and the terms of such other relevant schemes as may be
introduced in relation to which such contributions are payable.

 

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APPENDIX II

 

 

1                                          Title and Duties

 

1.1                                 You will be employed by the Company as Director – Group Performance.

 

1.2                                 As an employee you will perform such duties and exercise such powers
as may from time to time be assigned to you by the Company.  You will devote the whole of your attention
and skill to your duties.

 

1.3                                 You may be required by the Company, as part of your employment, to
have responsibilities for, and to carry out duties on behalf of, any of its
associated companies, to act as an officer, or consultant of any such
associated company and to carry out the duties relating to such an appointment.

 

2.                                       Places of work

 

You will be based at the Company’s office
at New Broad Street, but the Company has the right to transfer you to other
locations in the United Kingdom after consultation with you.  If any transfer necessitates moving house
you will be reimbursed for reasonable expenses you may so incur.

 

3.                                       Hours of Work

 

You will work such hours as may be
necessary or appropriate from time to time to carry out your duties properly
and effectively.

 

4.                                       Notice periods and retirement

 

4.1                                 Subject to Clause 12 below your employment will continue unless or
until terminated by either the Company giving to you or by you giving to the
Company not less than 12 months notice in writing.

 

4.2                                 Your employment will, in any event, automatically terminate (if not
already terminated) upon your 63rd birthday or on your retirement at any
earlier time.

 

5.                                       Holidays

 

5.1                                 You will be entitled to 25 days annual holiday on full salary
between 1 April and 31 March in each year (the “Holiday Year”), to be
taken at such time or times as may be approved by the Company.  You may not carry over any holiday
entitlement not taken in one Holiday Year to the next, except at the discretion
of the Company.

 

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5.2                                 Upon the termination of your employment (except pursuant to
Sub-Clause 12.1 below) you will be entitled to a payment in lieu of any
annual holiday which has accrued due since the beginning of the then current
Holiday Year and which you have not taken at the date of termination.  If on termination of employment you have
taken holidays in excess of the annual holiday which had accrued due by the date
of termination you shall pay forthwith to the Company, or that the Company may
deduct from any sums payable to you, an amount that is equal to the salary you
have been paid in respect of excess days of holiday taken by you.  For the purposes of this sub-clause your
annual holiday will be treated as accruing at the rate of two days for each
month of service completed after the beginning of the relevant Holiday year.

 

5.3                                 In addition you will be entitled during the Holiday Year to holiday
with pay on public, bank and other similar holidays.

 

6.                                       Ill Health

 

6.1                                 Provided that you supply the Company with self-certification
sickness forms and/or medical certificates covering the periods of absence as
required by the Company’s Sick Leave Rules you will be entitled to be paid
during absence from work due to sickness or injury for a period of a total of
up to six months on full salary in any period of twelve months you are
employed by the Company.  Thereafter,
you will at the discretion of the Company and, subject to the provisions of
Sub-Clause 12.2 below, continue to be paid for a further six months at half
salary.  In the event that your
employment is terminated either at the end of the aforementioned six month
period or under the terms of Sub-Clause 12.2 you will be entitled to receive
the benefits of such health insurance scheme as may from time to time be in
force.

 

6.2                                 If the sickness or injury resulting in your absence from work is, or
appears to be caused by the acts or conduct of a third party you must
immediately notify the Company giving full particulars, including particulars
of any relevant claim or legal proceedings. 
If required by the Company, you must also refund to it that part of any
damages recoverable relating to loss of earnings for the period of your absence
as the Company may reasonably determine provided that the amount to be refunded
shall not exceed the amount of damages or compensation actually recovered by
you less any costs borne by you in connection with such recovery and shall not
exceed the total remuneration paid to you in respect of the period of absence.

 

7.                                       Business expenses

 

You will be reimbursed with the amount of
all hotel, travelling and other expenses properly and necessarily incurred in
the performance of your duties

 

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against the production to the Company of
valid receipts for such expenses, and subject always to the Company’s current
policies with regard to business travel, accommodation and expenses.

 

8.                                       Confidential information and other business
interests and activities

 

8.1.                              During your employment you must not (other than with the written
consent of the Company) be directly or indirectly engaged or concerned in the
conduct of any other business, trade or occupation (whether as employee,
consultant, director, shareholder or otherwise).  Nevertheless, you may be or become a shareholder of not more than
3% of any class of security in any one Company which is quoted and dealt in on
any recognised Stock Exchange.  You must
at all times keep the Chairman, or his nominee, promptly and fully informed of
all matters upon which you are engaged outside your employment with the
Company.  You must also observe Company
requirements and procedures relating to the impartiality of officers and the
acceptance of gifts.

 

8.2                                 You will not, either during your employment (otherwise than in the
performance of your duties) or afterwards, use for your own or for anyone
else’s benefit, divulge or communicate to anyone any trade or business secret
or confidential information concerning the business, finances or affairs of the
Company, or any associated company, without the written consent of the Company
or relevant associated company, as appropriate.  You will use your best endeavours to prevent the misuse,
disclosure or publication of any trade or business secret or any confidential
information concerning the business of the Company or any associated company.

 

8.3                                 You will not make use of, make copies or notes of, or retain any
records, written or otherwise, relating to the business of the Company, or any
associated company, or allow any of these things to be done by anyone else,
otherwise than for the benefit of the Company or the relevant associated
company, as appropriate.  In any event,
upon the termination of your employment you will deliver up to the Company or
relevant associated company any such documents, together with all other Company
or associated company property.  Title
to and copyright in all such documents will be the Company’s (or, where appropriate,
the associated company’s) throughout.

 

8.4                                 You will not after the termination of your employment represent
yourself as being an officer of, or employed by or connected with, the Company
or any associated company.

 

8.5                                 You will not, for twelve months in respect of paragraph 8.5(a)
and nine months in respect of other paragraphs of this Sub-Clause, after the
termination of your employment (without the prior written consent of the
Company or any associated

 

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company
as appropriate) either on your own account or for any person, firm, company or
organisation:-

 

(a)                                  solicit or entice or endeavour to solicit or entice away from the
Company, or from any associated company in relation to which you held at any
time a position of responsibility in the course of your employment, any person
who is or who at any time during the six months prior to the termination of
your employment was an employee or Director of or consultant to the Company or
the relevant associated company and with whom you had personal contact or
dealings in the course of your employment during the period of six months prior
to the termination of your employment. 
This restriction applies whether or not such a person would commit any
breach of his contract of employment by reason of leaving the service of the
Company or the associated company, as appropriate;

 

(b)                                 solicit, or endeavour to solicit business from any person or
organisation with whom or which you had personal contact or dealings in the
course of your employment during the period of twelve months prior to the
termination of your employment, and which business is of the kind which is
undertaken by the Company, or by any associated company in relation to which
you held a position of responsibility in the course of your employment at any
time during the twelve months prior to its termination, and which was
undertaken by the Company or by any such relevant associated company as the
case may be, at any time during that twelve month period;

 

(c)                                  entice, or endeavour to entice, away from the Company, or from any
associated company in relation to which you held a position of responsibility
in the course of your employment at any time during the twelve months prior to
its termination, business of the kind which is undertaken by the Company, or
the relevant associated company, and which was undertaken by the Company or by
any such relevant associated company as the case may be, during that
twelve month period.

 

(d)                                 have business dealings with, or accept business from, any person or
organisation with whom you had personal contact or dealings in the course of
your employment during the twelve months prior to the termination of your
employment, and which business is of the kind which is undertaken by the
Company, or by any associated company in relation to which you held a position
of responsibility in the course of your employment at any time during the
twelve months prior to its termination, and which was undertaken by the Company
or by any such relevant associated company as the case may be, during that
twelve month period.

 

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8.6                                 You will not within England, Wales or Scotland and for the period of
nine months after the termination of your employment without the prior
written consent of the Company either alone or jointly with, or as manager,
agent consultant or employee of, any person or organisation, directly or
indirectly, carry on or be engaged or involved in the Restricted Business (as
defined in the Schedule) or in any other business which competes directly with
any business (other than the Restricted Business) of the Company or any
associated company in relation to which you held a position of responsibility
in the course of your employment at any time during the twelve months prior
to its termination.  During any period
of restriction which arises pursuant to this Sub-Clause 8.6, the Company will
pay you compensation of equivalent to nine months of your annual salary
determined from Sub-Clause 1.1 of Appendix I, always provided that you have not
committed any breach of the provisions of this Sub-Clause.  This compensation will be payable in nine
equal monthly payments on the last day of each calendar month beginning at the
end of the first complete calendar month after the termination of your
employment.

 

8.7                                 If you should at any time seek to leave the Company’s employment
without giving the full period of notice required under Clause 4 above and in
circumstances where you are not entitled to terminate your contract of
employment without giving such notice, the Company will have the right to
require you not to attend at any place of work and otherwise to suspend you
from the performance of your duties without prejudice to your rights to
remuneration and other benefits until such termination is effective.

 

8.8                                 You agree that the restrictions and obligations contained in
Sub-Clauses 8.2, 8.3, 8.4, 8.5 and 8.6 will continue after the termination of
your employment, whether terminated on notice, summarily, in breach of contract
or otherwise and whether terminated by you or by the Company.

 

8.9                                 For the avoidance of doubt, the restrictions contained in each of
the above Sub-Clauses constitute entire, separate and independent
restrictions.  If any restriction is
held to be unenforceable, then it is intended that the remaining restrictions
will remain in force and unaffected.

 

9.                                       Protection of intellectual property

 

9.1                                 Subject to the Patents Act 1977 and the Copyright Act 1956 (as
amended or consolidated), any invention made by you in the course of or arising
out of your employment belongs to the Company and you must take all appropriate
steps to ensure that the Company obtains the maximum benefit from such
invention by the prompt application for patents at the Company’s expense and
generally.

 

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9.2                                 If you create or make any discovery, design or other work in the
course of or arising out of your employment each such discovery, design or work
belongs to the Company and you should take all appropriate steps to ensure that
the Company obtains the maximum benefit from such discovery, design or work.

 

10.                                 Compliance with legislation and regulation

 

10.1                           You must observe the relevant requirements of the Stock Exchange “
Yellow Book”, The Company Securities (Insider Dealing) Act 1985 (as amended or
consolidated), and, when applicable, the City Code on Take-overs and Mergers
and the Rules governing Substantial Acquisitions of Shares.

 

10.2                           It is your obligation to ensure you take no action and make no
statement (or omit to take any action or make any statement) which constitutes
unlawful discrimination whether under the Sex Discrimination Act 1975 or
the Race Relations Act 1976 or otherwise.

 

10.3                           You are required to comply with the provisions of legislation on
health and safety and working conditions, and to do your utmost to ensure that
the Company, and any subsidiary company, complies with that legislation, with
the legislation concerning their areas of activity and generally with all legal
obligations affecting the Company and any subsidiary company or successor
company.

 

11.                                 Medical examinations

 

The Company may require you to undergo from
time to time a medical examination by a doctor appointed by the Company.  The Company will be entitled to receive a
report of the examination, a copy of which will be sent to you.

 

12.                                 Termination Provisions

 

12.1                           Your employment may be terminated forthwith by the Company by
summary notice in writing:

 

(a)                                  if you are guilty of any gross default or gross misconduct in connection
with or affecting the business of the Company or any associated company; or

 

(b)                                 in the event of any serious or repeated breach of or non-observance
by you of any of the stipulations contained in this agreement; or

 

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(c)                                  if you become unable to pay your debts or a bankruptcy order is made
against you, or if you enter into a deed of arrangement with your creditors; or

 

(d)                                 if you are convicted of any arrestable criminal offence (other than
an offence under road traffic legislation in the United Kingdom or elsewhere
for which a fine or non-custodial penalty is imposed); or

 

(e)                                  for any other reason permitting summary dismissal at law.

 

12.2                           If (owing to sickness, injury or otherwise) you do not perform your
duties for a period of at least six months (whether or not consecutive) in
any period of twelve months the Company will (without prejudice to any other
provision of this agreement) be entitled by summary notice to you in writing
(given at the expiry of such period or at any time thereafter while you
continue not to perform your duties hereunder) to terminate your employment
forthwith.

 

12.3                           If the Company has any grounds to believe it may have a right to
terminate your employment pursuant to Sub-Clause 12.1 above it shall be
entitled (but without prejudice to its right subsequently to terminate your
employment on the same or any other ground) to suspend you on full pay, for a
period of not more than three months for any enquiry or investigation into the
circumstances giving rise to such belief.

 

12.4                           In the event of the Company deciding to pay to you a sum in lieu of
notice (whether whole or in part), the Company reserves the right:-

 

a)                                      to reduce any such payment by such amount as the Company’s Remuneration
Committee shall direct if in the opinion of such Committee you have failed
properly to discharge your duties as an executive director of the Company;  and/or

 

b)                                     to discharge any such payment by means of instalment payments to you
during any remaining period of notice not worked by you, of such amounts and
upon such conditions as the Company’s Remuneration Committee may direct (having
regard in particular to your ability to mitigate any loss occasioned to you by
reason of the termination of your employment.)

 

12.5                           Upon termination of your employment for whatever reason, and whether
in breach of contract or otherwise, you will at the request of the Company or
any associated company, immediately resign, in writing and delivered as a deed,
your position as a Director of such associated company, waiving all
compensation for loss of office as Director. 
If you fail to resign your position as Director, all relevant associated
companies are hereby irrevocably authorised to appoint

 

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someone in
your name and on your behalf to sign any documents and to do any things
necessary to give effect to this obligation.

 

13.                                 Grievance/Disciplinary

 

In the event
that you are dissatisfied with any disciplinary action taken against you, or
have any grievance relating to your employment you should apply in the first
instance to the Chairman who will either propose a solution or refer the matter
to the Company Board for a decision. 
There is no formal disciplinary procedure relating to your employment.

 

14.                                 Continuous Employment

 

Your period of
continuous employment with the Company (including any relevant previous
employment with the Central Electricity Generating Board) began on 1 May 1998.

 

15.                                 Notices

 

Notice under
these Terms and Conditions will be treated as having been given if sent by
ordinary first class post, by you to the Company’s registered office or by the
Company to you at your last known address, as appropriate, and will be deemed
to be given on the day when it would ordinarily be delivered after such
posting.

 

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THE SCHEDULE

 

 

“Restricted Business” shall mean the businesses of:-

 

•                                          generation, distribution, marketing, sale or supply of electricity;
and/or

 

•                                          distribution, marketing, sale or supply of gas; and/or

 

•                                          the procurement or sale of fuel for the generation of electricity;
and/or

 

•                                          the construction or erection of power stations for the generation of
electricity; and/or

 

•                                          research into or technical evaluation of any process or method
capable of use in any of the items above; and/or

 

•                                          providing consultancy services in respect of any of the items above.

 

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SIGNED the day and year first before written.

 

 

	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  POWERGEN UK PLC

  	
  )

  
	
   

  	
  )

  
	
   

  	
  )

  
	
  SIGNED by

  	
  )

  
	
  RICHARD AITKEN-DAVIES

  	
  )

  

 

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TERMS AND CONDITIONS OF ASSIGNMENT TO: POWERGEN KENTUCKY LTD; US BRANCH
OFFICE (“The  Assignment”)

 

WITH POWERGEN UK PLC (“the Company”) 

 

NAME:  Mr Richard Aitken-Davies  

 

PROPOSED PERIOD: 1 January 2001 - 31 December 2002

 

References in this document to “Chief Executive Officer” mean the Chief
Executive Officer of LG&E Energy Corporation.

 

1.                                       Title

 

You will be assigned as the Chief Financial Officer, LG&E Energy
Corp.

 

2.                                       Remuneration

 

Your remuneration package is made up of:

 

	
  Basic Salary

  	
   

  	
  £167,104

  	
   

  	
  per annum

  
	
  Cost of living adjustment

  	
   

  	
  £3,410

  	
   

  	
  per annum (non-taxable)

  

 

Your salary will be reviewed in July each year. 
The  cost
of living adjustment is reviewed annually. As a result of the review, any
adjustments to your overseas remuneration will be made at this time. You should
be aware that these adjustments can go down as well as up.

 

The cost of living adjustment is based on the standard index. After one
year this will be reviewed on the basis that you will be a more informed
purchaser and the efficient purchaser index will be used.

 

Your salary net of hypothetical tax will be paid into your UK bank account.  Any reasonable bank charges associated with
the transfer of money to the US will be reimbursed on production of the
necessary documentation.

 

Your basic salary includes the sum of 
£9,504 in lieu of the payment that you currently receive under your UK
contract of employment for an executive level car.  On your return to the UK, you will continue to receive this
payment consolidated in your basic salary and will not be eligible for a car
under the executive car scheme.

 

Additional
Remuneration

 

In addition an overseas service payment (not subject to hypothetical tax)
of 5% of salary will be paid every six months for the duration of the
assignment.  The calculation will be
based on the basic salary at the time of payment.

 

Settling-in Allowance  (not subject to hypothetical tax)

 

1

 

A lump sum payment of £2000 will be paid as a contribution to the
expense of settling into your US accommodation.

 

3.                                       US Work Permit

 

It is a condition that you and your wife are in
possession of the relevant US Visa prior to commencing this assignment.

 

4.                                       Taxation

 

The Company agrees to the tax and social security arrangements as set
out in Appendix A which forms part of this contract.  This allows for hypothetical tax to be deducted from certain
components of your overseas package in order to contribute towards meeting any
real UK or US income tax liabilities.

 

On the basis of current UK tax legislation you should be entitled to
non-resident tax status, as your assignment includes a full UK tax year, (that
is, 6 April to 5 April).  You will need
to submit a P85 claim form to the Birmingham tax office via the tax advisors in
order to obtain this relief.

 

You will be provided with overseas tax return preparation assistance
for filing tax returns in the US and UK tax return preparation assistance in
the year of departure from, and arrival back in, the UK. You must ensure that
all information requested by the tax advisors is provided in a timely manner to
ensure compliance. Any penalties or interest costs arising from missed
deadlines will be reimbursed by you to the Company.  Any overseas tax repayments made to you must be signed over to
the Company at the time the money is received.

 

The advisors will provide such information to Powergen as is necessary
to ensure tax liabilities arising on employment related income are met by the
Company.

 

5.                                       National Insurance

 

The UK has a reciprocal agreement on social
security with the USA. Therefore, Powergen will apply to the relevant authorities
to allow you to remain in the UK National Insurance scheme for the duration of
your assignment.  If successful, you
will receive a Certificate of Continuing Liability to UK National Insurance and
Class 1 contributions will continue for the period of the assignment.

 

6.                                       Pension

 

During your
assignment in the US you will continue to be entitled to remain a member of the
Electricity Supply Pension Scheme, the Powergen Senior Executive Pension Scheme
(PSEPS) and the Unapproved Schemes and have pension contributions deducted from
your basic salary at the present rate. Should your circumstances change you
should inform the Pensions Manager at Powergen as soon as possible.

 

7.                                       Pre and Post Assignment Leave

 

2

 

You will be entitled to 1 day’s embarkation leave and 2 days’
recuperative leave at the start of the assignment, and 1 day’s embarkation
leave and 1 day’s rest leave at the end. 
This leave is in addition to your annual leave entitlement.

 

8.                                       Travel Costs

 

In order that you may take up your assignment, Powergen will pay
travelling expenses for you and your wife, to and from the US at the beginning
and end of the assignment (except as provided in 24.3 and 24.5).  These expenses will include payment of an
excess baggage allowance of 20kg each on both the outward and return flights.

 

Travel will be by Business class; flights booked through the Company’s
preferred supplier..

 

For travel from home to the UK airport,, you may wish to use a hire
car. Powergen will pay the cost of a maximum of 2 day’s hire. The same
arrangements will apply for the journey home at the end of your assignment
(except as provided in 24.3 and 24.5).

 

9.                                       Annual Leave

 

Your overall
leave entitlement will be 25 days (excluding travelling time) plus the annual
public holidays of the host country.  If
you wish to take annual leave this must be approved by the Chief Executive
Officer for the duration of the assignment.

 

10.                                 Home Leave and Travel Costs

 

You should incorporate home leave with business trips wherever
possible. You and your wife will each be entitled to 4 home leave tickets
during the assignment period excluding the outgoing and final trip home. In
addition, you are entitled to a further 4 tickets each year for your
non-accompanying family members. Travel for home leave will be on the basis of
business class airfare booked through the Company’s preferred supplier.

 

A hire car may
be booked for the full period of home leave. 
Petrol costs will be met by the Company.

 

Any days off
taken, as part of a home leave will be deducted from your annual leave
entitlement.

 

11.                                 Emergency ‘Home Leave’’

 

Consideration will be given to emergency home leave in the event of the
death or serious illness of an immediate family member in the UK.

 

12.                                 Freight

 

The reasonable costs of shipping personal effects will be paid at the
beginning and at the end of the assignment (except as provided in 24.3 and
24.5).  You and your wife will have a
total surface freight allowance of 3m3 per person net or equivalent
cost airfreight allowance.  When in the
UK, you should obtain quotes from our preferred suppliers and accept the
lowest.  Please refer to the notes of
guidance in the enclosures pack. At the end of your assignment you may contact
the preferred supplier or a local recommended organisation.   If you find the allowance of 3m3  net
restrictive, you should provide details of what you intend to take and the
Group HR

 

3

 

Director will give consideration to increasing the allowance on an
individual basis.  We recommend you do
not ship antique or fragile goods.

 

Unused freight allowance is not transferable.

 

13.                                 Temporary Accommodation on Arrival in the US

 

Should you and your wife have to stay in a hotel or other temporary
accommodation for the initial period of the assignment, reasonable costs,
including meals, will be reimbursed on production of receipts, within limits
agreed with  the Group HR Director.

 

14.                                 Accommodation – Destination Support

 

Assistance in finding suitable accommodation has been
arranged by the Company with First Choice International based in Louisville,
Kentucky.

 

15.                                 Permanent Accommodation

 

The Company will pay up to an agreed limit for reasonable accommodation
(including management and car parking/garage fees). Prior to commencing your
house search, the allowance and specification for your accommodation should be
agreed with the Senior Vice President and Administrative Officer.  Should you wish to rent a higher priced
property, you will be responsible for the additional costs incurred.  the Company will meet the cost of legal
fees, rates and estate agent fees.  You
will be responsible to the Landlord for any accidental damage to the property
or its contents that occurs during the assignment.  You should note that normally the lease is drawn-up in LG&E
Energy’ Corporations  name subject to
local arrangements. You and your wife will be entitled to occupy such
accommodation until your assignment in the US actually ceases.

 

16.                                 UK and US Utilities

 

The overriding principle is that you will remain responsible for one
set of standing charges and units consumed. 
The table below establishes where the responsibility for payment rests
in a range of circumstances.

 

Powergen will reimburse the total cost of initial connection charges
for gas, electricity, water and telephone and any subsequent disconnection
charges incurred in the US.

 

The Company
will pay reasonable business call costs and you should meet the cost of all
personal telephone calls.  Bills should be
itemised accordingly.

 

	
   

  	
   

  	
  UK

  	
   

  	
  US

  	
   

  
	
   

  	
   

  	
  Standing

  Charges

  	
   

  	
  Units

  Consumed

  	
   

  	
  Maintenance

  Costs Units

  	
   

  	
  Standing

  Charges

  	
   

  	
  Units

  Consumed

  	
   

  
	
  UK
  property occupied by family

  	
   

  	
  E

  	
   

  	
  E

  	
   

  	
  E

  	
   

  	
  PG

  	
   

  	
  PG

  	
   

  
	
  UK
  property rented-out

  	
   

  	
  E

  	
   

  	
  E

  	
   

  	
  E

  	
   

  	
  E

  	
   

  	
  E/PG*

  	
   

  
	
  UK
  property empty

  	
   

  	
  E

  	
   

  	
  —

  	
   

  	
  PG

  	
   

  	
  PG

  	
   

  	
  E/PG*

  	
   

  

 

E = Employee    PG = The
Company    E/PG* = Proportion of 50/50

 

4

 

17.                                 On-going Commitments in the UK

 

During the period of your assignment you will continue to be
responsible for payment of any such items as mortgage, house insurance, council
tax, etc related to any property owned/leased by you in the UK.

 

If you choose (as opposed to business need transfer) to sell your house
in the UK any costs incurred in the sale or purchase or rental of any
alternative property will not be met by Powergen that  is, at the commencement or end of an assignment.

 

Should you retain your house and leave it unoccupied during the
assignment, any additional reasonable costs incurred, (e.g. additional house
contents insurance, general property maintenance), will be reimbursed on
production of receipts. If you choose to rent out your property the Company
will not reimburse any additional costs incurred.  You should note that you have a duty to take every action to
mitigate any losses by taking proper security precautions, pursuing claims
against third parties etc.  The Company
will not pay for any costs associated with normal wear and tear of the
property.  You should check the terms of
your home contents insurance policy to ensure it is not invalidated by any
non-occupancy.

 

Any reasonable costs arising from the redirection of
mail from your home to a nominated forwarding address will be reimbursed on
production of receipts.

 

18.                                 Provision of US Transport

 

As you have a
UK entitlement to a contract car you will be provided with a lease vehicle in
the US in accordance with the senior executive car programme in LG&E. You
should discuss arrangements with the Group HR Director.  Actual petrol expenses incurred by business
mileage and private mileage will be met by the Company.  You will be entitled to company paid
parking.

 

You will need
to obtain an International Driving Permit by taking your British Licence and a
passport photograph to one of the national motoring organisations (AA, RAC,
National  Breakdown),
prior to your departure.  When
applicable the cost of any additional insurance above the leasing arrangements,
any road fund licence, together with any costs associated with driving tests
for you/your wife will be met by the Company.

 

As a resident in Kentucky you will also need to obtain a local driving
licence.

 

19.                                 Luncheon Club

 

You will be
reimbursed invitation fees and dues at a luncheon club of your choice subject
to club provisions of nondiscrimination.

 

20.                                 Occupational Health

 

5

 

You and your wife have received the necessary medical clearance from Dr
Vidia Kisnah, (Powergen’s Chief Medical Advisor) related to your stay in the US
and have been provided with appropriate medical advice and guidance and
equipment. Arrangements will be made by Dr Kisnah for a review in May 2001.

 

It is advisable for you and your wife to have full health checks e.g.
optician and dental checks, routine GP visits, prior to departure and on home
leave visits.  If you should require
such checks overseas or glasses/contact lenses, Powergen will meet any
significantly greater cost than that incurred in the UK upon production of
receipts.

 

21.                                 Insurance

 

Contents insurance applying to your possessions in the host country
will be provided through Ergon Insurance Ltd. 
You should refer to the overseas home insurance schedule for details of
cover and complete an insurance proposal form and return to Risk Management
based at Westwood.

 

Personal accident, and travel insurance will be provided for you and
your wife through AIG.

 

You and your wife will be eligible to participate in the medical plan
provisions which cover LG&E Energy Corporation employees in Kentucky.
Arrangements will be made to take you through the plan provisions.

 

22.                                 Business Visits

 

You may be
required to make business visits during the course of your assignment.  Travel will be on the basis of Business
class and a hire car may be booked for the full period of the visit.

 

All reasonable
visits to the UK to perform your current role with the Association of Chartered
Certified Accountants will be treated as business trips.

 

23.                                 Business Expenses

 

Business expenses
should be claimed in accordance with the Company arrangements.  They should be authorised by the Chief
Executive Officer.

 

24.                               Trips to the UK

 

For tax reasons you must notify the Group HR Manager of
any time spent in the UK either on business or pleasure.

 

25.                                 Assignment Completion

 

Three months before the end of the assignment you and the Chairman will
discuss the experience you have gained from the assignment in the US and
consider future career possibilities.

 

26.                                 Termination of Assignment

 

6

 

26.1                           The Company is entitled to terminate
your employment immediately by notice in writing to you pursuant to Clause
12.1(a), (b) (c), (d) (e) and 12.2 in your U.K Contract of Employment.

 

26.2                           The Company may terminate the
assignment at any time without indemnity, compensation or notice save as set
out in 26.4. The following list provides examples of reasons for termination
but it is not to be regarded as exhaustive:-

 

a)                                      termination of or a change to the
Company’s activities in the country or specific venture or project to which you
have been assigned or a change in the requirements of your role;

 

b)                                     if the Company receives advice that
your continued employment in the USA would be likely to endanger your health;

 

c)                                      domestic/compassionate and other
discretionary reasons requiring your return to the UK.

 

26.3                           If the assignment is terminated under
the provisions of paragraphs 26.1 above, at the discretion of the Chairman, you
will not be reimbursed the cost of you and your wifes repatriation to the
UK.  The Company will not be liable for
any loss of future income (from whatever source) allowance or benefits in kind
that would have been earned but for the termination.

 

26.4                           If the Company terminates the
assignment under the provisions of paragraphs 26.2 above or 26.7 below, then
you will be reimbursed for all reasonable transfer costs arising directly out
of the termination of your assignment. 
The overseas service payment will be paid on a pro-rata basis upon
termination of the assignment.

 

26.5                           In the event that you choose to resign
from the Company before the end of the assignment, you will not be eligible to
receive the overseas service payment nor will the Company pay for any return
travel or freight costs.

 

26.6                           Tax equalisation will be applied until
the date of termination of the assignment.

 

26.7                           If you can demonstrate on reasonable
grounds that you are unable to pursue the objectives of this assignment in the
US in the interests of the Company (or your own personal interests) and
following consultation with the Chief Executive Officer and Group HR Director
the position can not be resolved then you will return to your role as Director
– Group Performance or an equivalent position agreeable to you at the time to
be mutually agreed or in default of agreement upon three months notice from
you.

 

26.8                           In the event that the company is taken
over and completion of the takeover occurs during the first twelve months of
your assignment, then for a period of twelve months from the date of the
takeover, the relevant notice period to terminate your employment would be the
remainder of  your assignment period
plus the notice period as set out in your UK contract of employment.  In all other circumstances, the notice
period set out in your UK contract of employment will apply.

 

7

 

27.                                 British Consulate

 

You should register yourself and your wife at the local
British Consulate Office soon after arrival in the US.

 

26.                                 Jurisdiction

 

This agreement shall be governed by and interpreted in
accordance with the laws of England and each of the parties submit to the
jurisdiction of the English courts as regards any claim or matter arising under
this agreement.

 

27.                                 Contract of Employment

 

Except as stated in these terms and conditions your
contract of employment with Powergen UK plc dated 23 June 1999 remains
unchanged.

 

Signed for and on behalf of Powergen UK plc:

 

 

	
  /signed/

  	
   

  	
   

  	
  19 March, 01

  	
   

  
	
   

  	
   

  	
   

  
	
  J A HART

  	
   

  	
  Date

  

 

 

I have read the terms and conditions of
assignment and understand and agree to abide by the tax and social security
equalisation arrangement (Appendix A). 
I accept the assignment on the basis of these terms and conditions.

 

 

	
  /signed/

  	
   

  	
   

  	
  26th March 2001

  	
   

  
	
   

  	
   

  	
   

  
	
  Richard Aitken-Davies

  	
   

  	
  Date

  

 

8

 

 

Appendix A

 

TAX AND SOCIAL SECURITY EQUALISATION

 

In order to ensure a fair and consistent approach to
its international assignees, Powergen (Powergen UK plc and its subsidiaries)
having regard to the practices adopted by other international companies, have applied
a tax and social security equalisation policy on all basic UK pay and benefits
elements, except healthcare.  Tax
liability arising from receiving allowances or other benefits, e.g. “free”
accommodation is met by Powergen.

 

Tax equalisation on personal income is not usual
Powergen policy however taking into account your circumstances, arrangements
will be made for your to meet with representatives from Arthur Andersen so that
you can identify your current personal income/investment portfolio (‘register’
the portfolio). Powergen will then undertake to reimburse any incremental tax
liability incurred on that portfolio as a result of the assignment to the
US.  This commitment is subject to you
adopting the tax filing basis recommended by Arthur Andersen’s.

 

Taking into account your circumstances, Powergen’s tax
equalisation position with regards to income arising under Powergen’s share
based plans is based on the following four basic principles:

 

1.  Any host
country liability arising from an initial grant/award (as opposed to exercise
or disposal under a Powergen share based plan will be covered by tax
equalisation.

 

2. Any “forced” exercise which creates a US tax
liability will be tax equalized.  Where
such an event would “ordinarily” create a UK tax liability (i.e. exercise of an
unapproved option), hypothetical taxes will be deducted, with the company
meting any actual UK and UK taxes.

 

3.  Any home or
US tax liability arising as a result of any voluntary exercise is for the
individual’s account.  Further:

 

a)  where the
plan is approved and therefore non taxable in the UK, it will be the
individual’s responsibility to meet the US liability.

 

b)  where the
plan is unapproved and therefore “ordinarily” taxable in the UK, either in part
or whole, the company will deduct hypothetical tax and pay all home and US
taxes to a maximum of the hypothetical tax deduction.  Any actual taxes in excess of this amount will be for the
individual’s account.

 

4.  The
disposal of any shares acquired through any Powergen share based plan (unless
there is a “forced disposal”) is a personal investment decision and any home or
US taxes arising on such a disposal are therefore not covered by tax
equalisation.

 

9

 

Note:

 

The term “exercise” includes both an exercise of an
option or a request for plan shares to be released from trust.

 

The term “forced exercise” is defined as an exercise
which either:

 

a)  occurs
within the last seven days up to and including the expiry dates of the specified
vesting periods applicable to each of Powergen’s share based plans; or

 

b)  occurs
within the last seven days up to and including the start of a closed period
where the normal expiry date falls within the closed period; or

 

c)  occurs as a
result of a change to Powergen’s corporate existence.

 

The term “voluntary exercise” is defined as any
exercise which is not forced.

 

The term “forced disposal” is defined as where the
individual is obliged at “forced exercise” to fund the actual/hypothetical tax arising
by disposing of a proportion of the exercised shareholding.

 

The term “closed period” is defined as a specified
period, during the normal vesting period applicable to each of Powergen’s based
plans, in which an individual is prevented from exercising due to stock
exchange or other statutory restrictions.

 

The total tax liability for the overseas assignment is
met by Powergen utilizing the hypothetical tax policies plus its own
funding.  Arthur Andersen are engaged to
support the process.  Any UK tax refunds
in the year of departure from and arrival in the UK arising as a result of the
overseas assignment, including refunds due to unused personal allowances, but
excluding refunds relating to non-employment income not covered above must be
repaid to Powergen.  Further any under
or over payment of actual UK or overseas tax, in respect of employment related
income or that identified above only, will be met by Powergen or collected from
the individual, respectively.   In the
unlikely event of your being declared redundant whilst overseas, our tax
equalisation policy will apply to the severance payments.

 

It is important to note that hypothetical tax is not
real income tax and uses standard allowances rather than actual tax codes.  As in the UK, tax relief on Electricity
Supply Pension Scheme contributions (ESPS) including additional voluntary
contributions to the ESPS is maintained. 
The basis of calculation of hypothetical tax is further outlined below.  Where the assignment commences or terminates
part way through the UK tax year, the lower and basic rate bands and personal
allowances will be pro-rated in the hypothetical tax calculation.

 

10

 

On the basis of current UK tax legislation, if your
assignment includes a full UK tax year (that is 6 April to 5 April) you will be
deemed to be a non-resident in the UK. 
If not, it is likely you will be taxable both in the UK and US.

 

You will be required to submit UK and UK tax returns
during the period of the Assignment. 
Arthur Andersen have been appointed as Powergen’s international tax
advisers who will assist with the preparation of returns (as detailed below)
and the calculation of actual tax payable. 
You may wish to supplement Arthur Andersen’s advise with independent
financial advice in relation to your personal investment income.

 

Prior to commencing your US assignment, you are
required to meet with Arthur Andersen who will clarify your taxation position
and complete the necessary exit documentation for submission to the Inland
Revenue.  Failure to do this may result
in considerable tax complications for you.

 

It should be noted that you retain ultimate
responsibility for the returns and must ensure that all information requested
by the tax advisers is proved in a timely manner to ensure compliance.  Any penalties or interest costs arising from
missed deadlines will need to be reimbursed to Powergen.

 

Social Security Equalisation

 

National Insurance helps to pay for some Social
Security benefits including retirement pensions.  Whilst employed in the UK Class 1 contributions, up to a maximum
rate are deducted from salary.  Powergen
also pays employer NI contributions for you.

 

For assignments to the US, the UK has a reciprocal
agreement.  Subject to various qualifications
you will remain subject to UK National Insurance only and therefore both you
and Powergen will remain liable for Class 1 contributions.

 

 

December 2000

 

11

 

EXPATRIATE TAX EQUALISATION

 

 

Components of Package

 

Taxable — equalised back to UK

 

Base Salary

Any Bonus payments

Car/transport allowance (personal use)

“Forced exercise” of the unapproved option

Exercise of approved option in an unapproved manner

“Voluntary exercise” of unapproved option subject to
maximum referred to in point 3.b above

 

Non Taxable — Tax Paid by Powergen

 

Cost of living allowance

Overseas service payment

Location allowance

Settling in allowance

Accommodation costs

Home leave

Travel costs

Overseas relocation costs

Travel/accident insurance

UK garden and property maintenance costs

Overseas utility charges (where paid)

Private medical insurance

US lease car (senior executive car programme and
associated expenses

Powergen share based plan — grant/award

Powergen share based plan — “forced exercise” of UK
approved option

Powergen share based plan —  “forced disposal”

“Registered” portfolio of personal/investment income

 

December 2000

 

12

 

AMENDMENT TO THE TERMS AND CONDITIONS

OF ASSIGNMENT TO: LG&E ENERGY CORP.

OF

RICHARD AITKEN-DAVIES

 

THIS AMENDMENT TO THE TERMS AND CONDITIONS OF ASSIGNMENT TO: LG&E
ENERGY CORP. OF RICHARD AITKEN-DAVIES (“AMENDMENT”) is made and entered into this 27th day of June, 2002 by
and among (i) LG&E ENERGY CORP.,
a Kentucky corporation (“Company”), (ii) POWERGEN,
PLC, a United Kingdom public limited company (“Parent”) and, (iii) RICHARD AITKEN-DAVIES (“Executive”),
collectively referred to as the “Parties”.

 

WHEREAS, the Executive and the Parent entered into a Contract of
Employment, dated June 22, 1999 (“Agreement”).

 

WHEREAS, the Agreement was modified by the Terms and Conditions of
Assignment To: LG&E Energy Corp. in a document dated December 19, 2000
(“Assignment”).

 

WHEREAS, the Parent and E.ON AG, an aktiengesellschaft formed under the
Federal Republic of Germany (“German Parent”) have agreed to the terms of a
recommended pre-conditional cash offer, whereby German Parent or its subsidiary
will acquire ownership of the Parent.

 

WHEREAS, the Parent and the German Parent have determined that the
acquisition of the Parent by the German Parent shall be completed by way of a
scheme of arrangement, whereby the acquisition will become effective in
accordance with the terms of the scheme (“Acquisition Date”).

 

WHEREAS, the Parties have determined that it is now desirable to amend the
Assignment to reflect certain changes necessitated by the German Parent’s
acquisition of the Parent.

 

AGREEMENT:

 

NOW THEREFORE, in consideration of the respective agreements of the parties
contained herein, it is agreed that the Assignment shall be amended as follows:

 

1.  The Proposed Period of the Assignment shall
be extended until the second anniversary of the Acquisition Date.

 

2.  A new Section 26.9 shall be added to the end
of Article 26 of the Assignment to read as follows:

 

 

13

 

"26.9 
If the Executive is (i) employed on the day following the second
anniversary of the Acquisition Date by the Company, the Parent, the German
Parent, or any subsidiary of the Company, the Parent or the German Parent,
hereinafter collectively referred to as the "Employer", or (ii)
terminated from employment prior to the expiration of the twenty-four (24)
month period following the Acquisition Date by an Employer (other than as
provided for in Sections 12.1 or 12.2 of Appendix II to the Agreement) or by
the Executive for Good Reason (as hereinafter defined), the Employer shall pay
to the Executive on such an anniversary or within 10 days of such termination date
a cash lump sum payment in an amount equal to (i) the Executive's Salary Amount
(as hereinafter defined), and (ii) the Executive's Target Annual Incentive
Amount (as hereinafter defined).  For
purposes of this Agreement, "Good Reason" shall mean a reduction by
an Employer in the Executive's base salary or annual target bonus percentage as
in effect prior to such reduction, or any failure to pay the Executive any
compensation or benefits to which the Executive is entitled within thirty (30)
days of its commission.  For purposes of
this Agreement, "Salary Amount" shall mean the Executive's annual
base salary from an Employer in effect at the time of payment;, provided
however, if an Employer has reduced the Executive's annual base salary, the
Salary Amount shall be the annual base salary in effect prior to the
reduction.  For purposes of this
Agreement, "Target Annual Incentive Amount" shall mean the target
annual bonus of the Executive under the annual incentive plan of the Employer
at the time of payment; provided however, that if an Employer has reduced the
target annual bonus of the Executive, the Target Annual Incentive Amount shall
be the target annual bonus in effect prior to the reduction."

 

3.             Except
as provided in this Amendment, the temrs and conditions of the Agreement and
the Assignment shall remain in full force and effect.

 

                IN WITNESS WHEREOF, the Company, the Parent
have caused this Amendment to be executed by its duly authorized representative
and the Executive has executed this Amendment as of the date set forth below,
but which shall become effective as of the Acquisition Date, provided the
Executive is employed by the Company on that date.

 

 

14

 

	
   

  	
   

  	
   

  	
  LG&E ENERGY CORP.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ John R. McCall

  
	
   

  	
   

  	
   

  	
   

  	
  Name

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title

  	
  EVP, General Counsel, Corp. Sec.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Date:

  	
  6/21/02

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  POWERGEN, PLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /signed/

  
	
   

  	
   

  	
   

  	
   

  	
  Name

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  EXECUTIVE

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  /s/ Richard Aitken-Davies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Richard Aitken-Davies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

15EXHIBIT 10.78

 

POWERGEN

 

UK LONG TERM INCENTIVE PLAN

 

NOVEMBER 2002

 

 

I

 

EXECUTIVE SUMMARY

 

 

This document
sets out detailed proposals for the design and operation of the UK Long-term
Incentive Plan (“the Plan”).

 

Purpose of the Plan

 

The primary
purpose of the plan is to provide senior executives under a UK contract of
employment with an incentive, beyond the annual bonus, linked to company
performance.

 

In addition,
the plan is intended to assist in the retention of executives and to ensure
that, when considered with the E.ON Stock Option Award Programme, the level of
long-term incentive reward available is competitive in the UK market.

 

Eligibility

 

The following
categories of executives employed by Powergen UK plc are eligible to be
considered for awards in 2002 and future years subject to Board approval:

 

1.                                       Directors in the Powergen UK business.

2.                                       Corporate Powergen Directors based in the UK.

3.                                       UK Directors on secondment to LG&E.

4.                                       Selected Senior Managers

 

In addition,
for the awards in 2003 and onwards, it is proposed that selected senior
managers may be included in the plan. 
Currently it is estimated that approximately 25 senior managers have
sufficiently broad impact on either Powergen UK or the Corporate Centre to be
included, although that figure may be revised as the business changes.

 

For the
avoidance of doubt, former TXU employees will not be included in the 2002
grant.

 

Plan Overview

 

Awards will be
granted on an annual basis.  Each award
will be earned over three financial years. 
Target award levels will be expressed as a percentage of annual salary
valued at time of grant.

 

1

 

The target
award will be adjusted according to business performance in each of the three
financial years and the adjusted award paid in cash following the approval of
E.ON AG’s results at the end of the third financial year by E.ON AG’s
shareholders

 

The adjustment
following each year’s results may be up or down by up to 30%.  So, for example, if an executive’s initial
award is £100:

 

1.                                       The maximum award at the end of three years would be 100 x 1.3 x 1.3
x 1.3 = £219.70.

2.                                       The minimum award at the end of three years would be 100 x 0.7 x 0.7
x 0.7 = £34.30.

 

Performance Measures

 

The
performance measures will be agreed at the beginning of each year.  Performance measures for 2002 will be as
follows using the definition of Internal Operating Profit (IOP) in the E.ON
Planning and Controlling Manual:

 

1.                                       Powergen UK Internal Operating Profit for those working in that business.

2.                                       LG&E Internal Operating Profit for UK expatriates working in
LG&E.

3.                                       Powergen Group Internal Operating Profit for those working in the
Corporate Centre.

 

The adjustment
to the target award will be by 3% of the target award for each 1% variation
from target.  So the maximum adjustment
of 30% to the target award applies for results 10% or more above target, and
conversely the maximum reduction of 30% applies for results 10% or more below
target.

 

Key design issues

 

The following
are the key design issues that have been discussed with the UK and E.ON HR
management, and the recommended approach that has been incorporated in the
draft documentation.

 

1.               The
company has the right in exceptional circumstances such as very poor business
results or a major accident to cancel or defer the payments under the plan.

 

2.               Where
participant moves between business units the company has the option to change
the performance measure to the new business unit for current and subsequent
years of existing awards as well as for future awards.

 

3.               The
award should be paid to employees who are in service on the last day of the
three year period.  This is different
from the position previously notified which was that people working out notice
at the end of the award period would not be entitled to payment.  It was considered that the complication of

 

2

 

pro-rating and the negative impact of
proposing to cancel or reduce awards outweighed any cost saving or extended
retention.

 

4.               Individual
performance is a factor in the plan in that poor performers may not be granted
an award.  However, once an award has
been granted, only company performance and remaining in service determine
whether the award is paid and the amount of the award.

 

5.               If
the business is restructured, the Board has the right to revise targets to
reflect the new business structure.

 

3

 

II

 

RULES OF THE POWERGEN LONG-TERM INCENTIVE PLAN

 

 

These rules
govern the operation of the Powergen UK and Corporate Centre Long-Term
Incentive Plan (“the Plan”) which has been established to provide selected
Powergen executives under a UK contract of employment with a long-term
incentive opportunity related to business performance.

 

The plan is
operated on behalf of the Board of Powergen plc whose decision on questions of
interpretation of the rules is final. 
It is anticipated that this Plan will be adopted by the Powergen Board
at the last meeting of 2002.  The
Powergen Board delegates full authority to the Senior Vice President Corporate
Executive Human Resources of E.ON AG (currently Stefan Vogg) in all matters
relating to the operation of the Plan including participants and performance
measures.

 

Definitions

 

Award period means
the period of 36 months commencing at the start of the financial year in which
the award is granted.

 

Board means the
Board of Powergen plc.

 

Award means a
contingent entitlement to payment under the plan granted under rule 2.

 

Award period means
the three financial years of Powergen starting with the year in which the award
is granted.

 

E.ON Group means
E.ON AG and all its subsidiary and associated companies.

 

1.                        Eligibility

 

Participation
in the Plan is by invitation at the discretion of the Board who may select
participants from directors and senior managers in the following categories:

 

(a)                                  those working in the Powergen UK business;

(b)                                 those working in the Powergen Corporate Centre based in the UK;

(c)                                  UK employees on secondment to LG&E or elsewhere in the E.ON
Group

 

The grant of
an award in a particular plan cycle does not imply that the participant will be
granted awards in subsequent cycles of the plan.

 

4

 

2.                        Grant of Awards

 

Awards granted
will be expressed as a target monetary amount and will be notified to
participants in writing.  Each award
will relate to a period of three financial years of Powergen starting with the
year in which the award is granted.

 

Following each
financial year, the target award will be increased or reduced according to a
performance measure and scale included in the award letter.

 

3.                        Payment of the Award

 

Provided the
award holder is employed within the E.ON Group continuously from the date of
the award until the end of the award period the monetary value of the amount of
the award following the adjustment after the end of the third financial year
will be paid within 90 days of the approval of E.ON AG’s results at the end of
the third financial year by E.ON AG’s shareholders.

 

The payment
will be subject to the normal deductions for taxation and social security
contributions that apply to cash bonuses. 
Payments are not pensionable.

 

4.                        Transferring with the E.ON Group

 

If an award
holder transfers from one business to another within the E.ON Group past awards
will continue as normal; performance measures for past awards will, unless
notification to the contrary is given to the award holder, continue to be
operated based on the performance of the business units as stated in the original
award letter for each award.  Any
subsequent awards, if granted, would normally be based on performance of the
unit in which the participant was working at the date of that award.

 

5.                        Sale of a Business

 

If the
business in which the participant is working ceases to be part of the E.ON
Group the Board may terminate those awards in accordance with rule 8 or may
agree with the new owner that awards continue in operation and become the
responsibility of the new owner.  In the
case of awards held by employees no longer working in the business being sold
but elsewhere in the E.ON Group, the Board will determine whether those awards
continue with revised performance measure or are terminated in accordance with
rule 8.

 

6.                        Restructuring of the Business

 

If all or any
part of the business is restructured, the Board has the right to revise targets
to reflect the new business structure.

 

5

 

7.                        Leaving the E.ON Group

 

If an award
holder ceases to be employed within the E.ON Group for any reason then no
payment will be made unless cessation of employment takes place after the end
of the first financial year of the award period as a result of:

 

(a)                                  retirement,
whether at normal retirement date, early or late or due to ill-health; or

(b)                                 death
in service; or

(c)                                  redundancy.

 

In those
circumstances the amount of award, adjusted for each completed financial year
of service relating to the award, will be pro-rated for completed months of
employment since the start of the financial year in which the award was granted
as compared to the 36 months of the award period.  That is:

 

Amount of
payment = Latest adjusted   x   Completed months of service in award
period

                                     value of
award                                           36

 

8.                        Cancellation or deferral of payment

 

In exceptional
circumstances the Board may at its discretion cancel, reduce or defer payment
of any award due for payment. In this context exceptional circumstances would
include, but not be limited to, severely adverse financial results; serious
financial irregularities or wider group policy decision.

 

9.                        Termination of Plan or Awards

 

The Board may
at its discretion at any time terminate the plan or terminate awards that have
been made previously.  In that event,
awards will be paid in cash pro rata for months completed during the award
period at a level reflecting adjustments for all completed financial years
prior to termination of the award. 
Payment will be made in cash within 90 days after the effective date of
termination.

 

10.                 Discretion of the Board

 

If any
circumstances arise that are not covered by these rules, the Board, having
taken advice from the Senior Vice President Corporate Executive Human Resources
of E.ON AG E.ON AG (currently Stefan Vogg), will decide on the approach to be
taken and that decision will be final.

 

6

 

11.                 Adjustments to Awards

 

At the
discretion of the Senior Vice President Corporate Executive Human Resources of
E.ON AG (currently Stefan Vogg), the size of an award may be adjusted to
reflect circumstances such as:

 

1.                                       Absence from work on reduced pay or unpaid, for example through
leave of absence, extended maternity leave or sickness.

2.                                       Change to working hours such as a move from full-time to part-time
or vice versa.

3.                                       Change in the financial year end of Powergen and/or E.ON AG.

 

If such
adjustment is made it should be calculated to reflect the actual time paid at
full rate (or pro rata at a reduced rate) during the award period as compared
to that anticipated when the award was made.

 

No adjustment
to awards will be made in the case of salary increases or promotion during the
award period.

 

11.                               Amendment to Rules

 

The Board,
having taken advice from the Senior Vice President Corporate Executive Human
Resources of E.ON AG (currently Stefan Vogg), may amend these Rules.  Any amendment will be effective only for
awards granted after the amendment is made.

 

7

 

III

 

ADMINISTRATION GUIDE

 

 

This guide
forms part of the governance of the Powergen Long-Term Incentive Plan (“the
Plan”) approved by the Board of Powergen plc and is intended as a reference
document for the Board and for the administration of the plan. It is to be read
in conjunction with the Rules of the Plan.

 

The Powergen
Board will delegate full authority to the Senior Vice President Corporate
Executive Human Resources of E.ON AG (currently Stefan Vogg) in all matters
relating to the operation of the Plan including participants and performance
measures.

 

Key decisions
regarding changes to the design of the Plan are referred formally by the
Board.  In all cases the Board will take
advice from the Senior Vice President Corporate Executive Human Resources of
E.ON AG (currently Stefan Vogg) prior to taking its decision.  However, the Powergen Board delegates full
authority to the Senior Vice President Corporate Executive Human Resources of
E.ON AG (currently Stefan Vogg) in all matters relating to the operation of the
Plan including participants and performance measures.

 

1.                        Eligibility

 

Awards are
intended to be made annually, subject to Board approval and to satisfactory
individual performance to:

 

1.               Directors in the UK
business.

2.               Directors based in the
UK in the Powergen Corporate Centre.

3.               UK Directors on
secondment elsewhere in the E.ON Group.

4.               At
discretion, selected other senior managers based in the UK or on secondment
elsewhere in E.ON Group.

 

Note:
Secondees to Powergen from elsewhere in E.ON Group, on expatriate terms or
otherwise, are not normally eligible for the plan.

 

2.                        Size of award

 

For 2003 the
award is to be calculated as the following percentage of salary on 1st
January in the financial year in which the award is granted:

 

8

 

	
  Position

  	
   

  	
  Target
  Award

  as percentage of Salary

  	
   

  
	
  UK Chief Executive

  	
   

  	
  40

  	
  %

  
	
  Directors

  	
   

  	
  25

  	
  %

  
	
  Senior Managers

  	
   

  	
  15

  	
  %

  

 

The basis of
future awards will be recommended to the Board on an annual basis.

 

Awards will be
expressed as a money amount calculated on annual basic salary as at 1st
January at the start of the financial year in which the award is granted.  No adjustment will be made for subsequent
salary increases or promotions.

 

3.                        Performance measures

 

The performance
measure for each award is announced in the award letter.  The performance measure for 2002 will be
Internal Operating Profit as defined in the E.ON Planning and Controlling
Manual.  This could change for
subsequent years; any change in performance measure will apply to existing
awards part way through their award period as well as to subsequent awards so
that only one measure is in use for any year for each company.

 

The intention
is that the performance measured will be that of the business in which the
participant is working when the award is granted; subsequent changes in role
will not affect the measures applied to the awards granted previously.  Performance measured will therefore be:

 

1.                                       Powergen UK Internal Operating Profit for those working in that
business.

2.                                       LG&E Internal Operating Profit for UK expatriates working in
LG&E.

3.                                       Powergen Group Internal Operating Profit for those working in the
Corporate Centre.

 

For 2002 and
2003 the performance scale for adjustment will be a 3% change in award value
for each 1% variance from target.  The
variance should be calculated as a percentage to one decimal place so for
example if final results are 96.3% of target this is a variance of -3.7%; this
variance would result in awards being reduced by 3 x 3.7% = 11.1%.

 

4.                        New entrants to the population

 

New entrants
to the population of Directors and Senior Managers that may be considered for
the plan will be considered for an award at the next award date following their
date of joining that population.  This
will apply irrespective of whether they join the population by external
recruitment, by promotion within Powergen or by transfer from elsewhere in the
E.ON Group.

 

9

 

In exceptional
cases, the Board has discretion to make an award at a date other than the
normal award date for the year; the amount of the award may differ from the
normal formula.

 

5.                        Adjustment of awards

 

The rules
allow discretion for adjustment in awards where the participant works for a proportion
of full-time that is substantially different from that envisaged at the award
date.  This could happen where an
employee changes from full-time to part-time or vice versa, or has a period of
absence for whatever reason at reduced pay or on an unpaid basis.

 

Cases will be
considered by the SVP Corporate Executive Human Resources on an individual
basis.  In general the principle for
adjustment would be to calculate the proportion of time paid at base salary
during the three year award period as compared to that expected.  For example, someone working 60% of time (3
days per week) at the time of the award who changed to full-time six months
before the end of the award period has been paid at base salary for 2.5 years x
..6 + 0.5 years x 1 = 2 years.  This
compares to an expected 3 years x 0.6 = 1.8.

 

There would
therefore be a case for increasing the award in the ratio of 2:1.8.

 

Similarly
someone who had a period of six months unpaid leave during the three year
period might have their award reduced in the ratio 2.5:3.

 

Someone who is
on unpaid maternity leave or other leave at the end of the three year period
relating to an award is treated as being in service at that date and qualifies
for payment of the award.

 

6.                        Payment of awards

 

Awards are to
be paid via payroll within 90 days of the approval of E.ON AG’s results at the
end of the third financial year by E.ON AG’s shareholders.  The payment amount will be net of the usual
tax and National Insurance (or equivalent) deductions.

 

Payments on
early termination of awards, for example on retirement or on sale of a
business, to be made by cheque within 90 days after the effective date of
termination.

 

10

 

Illustration Only

 

POWERGEN LONG-TERM INCENTIVE PLAN

 

Statement of awards for: A Director

 

	
   

  	
   

  	
  March
  2003

  	
   

  
	
  Year Award
  Granted

  	
   

  	
  2002

  	
   

  	
  2003

  	
   

  	
  2004

  	
   

  	
  2005

  	
   

  	
  Total

  	
   

  
	
  Award Period – Financial Years

  	
   

  	
  2002 - 2004

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Initial Award

  	
   

  	
  £10,000

  	
   

  	
  £20,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Adjustments based on performance of

  	
   

  	
  Powergen

  UK

  	
   

  	
  Powergen

  UK

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2002

  	
  Award value as at 1st January

  	
   

  	
  £10,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Performance measure and target

  	
   

  	
  IOP £300m

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Performance outcome

  	
   

  	
  £297m (99%)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Adjustment to award

  	
   

  	
  -3%

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2003

  	
  Award value as at 1st January

  	
   

  	
  £9,700

  	
   

  	
  £20,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Performance measure and target

  	
   

  	
  IOP £320m

  	
   

  	
  IOP £320m

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Performance outcome

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Adjustment to award

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2004

  	
  Award value as at 1st January

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Performance measure and target

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Performance outcome

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Adjustment to award

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2005

  	
  Award value as at 1st January

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Performance measure and target

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Performance outcome

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Adjustment to award

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

11

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