Bidder's Statement - Peabody Energy

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• an amount equal to all interest paid or payable by AM on the above amounts in respect of the 90 day period following the provision of the termination notice; and • any utilisation fee paid or payable by AM in respect of the above amounts. The exclusivity provisions outlined in section 10.2(e) above survive termination of the Co-operation and Contribution Agreement. 10.3 Shareholders’ Deed PEAMCoal, PEAMCoal Holdings, PAC2, AM and AM BV2 have entered into the Shareholders’ Deed. The Shareholders’ Deed will regulate the affairs of PEAMCoal Holdings and PEAMCoal and PEAMCoal’s majority ownership of Macarthur and its subsidiaries following successful completion of the Offer. If following completion of the Offer PEAMCoal holds Shares, a consequence of the ownership structure and control of PEAMCoal and PEAMCoal Holdings by Peabody Energy and ArcelorMittal is that Peabody Energy and ArcelorMittal will be able to acquire direct or indirect ownership and control of any of the shares in PEAMCoal Holdings from the other, or any of the Shares held by PEAMCoal, free of any limitation under Australian takeovers laws. The Shareholders’ Deed will take effect after the end of the Offer Period if the Contribution and Co-operation Agreement has not been terminated, the defeating conditions to the Offer have been freed or fulfilled and the Offer has not been withdrawn. The obligations of PAC2 and AM and AM BV2 are guaranteed by their respective ultimate holding companies. Key matters addressed by the Shareholders’ Deed include: (a) Governance: PAC2 and AM BV2 will have proportionate board representation on the PEAMCoal Holdings and PEAMCoal boards and (if achievable) the Macarthur Board. Following the successful completion of the Offer, PEAMCoal will have control of the Macarthur Board through acquiring at least 50.01% of the Shares. For so long as PAC2 holds a majority of the shares in PEAMCoal Holdings, it will be able to appoint the majority of directors to the boards of PEAMCoal Holdings and PEAMCoal and the Macarthur Board. (b) Day to day control: PAC2 will have responsibility for the day to day operation of PEAMCoal Holdings, PEAMCoal and the Macarthur Group, subject to the terms of the Shareholders’ Deed including the various matters set out below. In addition PAC2 will have responsibility for setting and approving the annual budget. The budget process each year will follow the approval of the 5 year strategic business plan, which requires PAC2 and AM BV2 approval. It is intended that the budget will be consistent with the strategic business plan, but that the budget will prevail in the event of inconsistency. Even though PAC2 will have day to day and operational control of PEAMCoal Holdings, PEAMCoal and the Macarthur Group, AM BV2 has certain agreed approval rights. These include: (1) approval of the strategic business plan (as mentioned above); (2) prescribed shareholder approvals in respect of fundamental shareholder protection matters (e.g. non-pro rata share issues, insolvency events, changes to the nature of the business of PEAMCoal Holdings, PEAMCoal or Macarthur) require unanimous PEAMCoal Holdings shareholder approval. This also includes related party dealings between Peabody Group members and Macarthur (on the one hand) or ArcelorMittal Group members and Macarthur (on the other hand), over which each of PAC2 and AM BV2 has a veto except to the extent such dealings are on arm’s length terms or better and involve payments of less than a total aggregate amount of A$35 million per annum; and (3) approval rights in relation to various matters of strategic significance require the approval of shareholders holding together at least 80% of the shares in PEAMCoal Holdings. This includes (amongst other things) the strategic business plan, major project approval, material capital variations and material asset acquisitions and disposals. (c) Macarthur personnel: PAC2 will have the right (but not the obligation) to appoint the chief executive officer and the chief operating officer of Macarthur and AM BV2 will have the right (but not the obligation) to appoint the chief financial officer of Macarthur. (d) Exit: the Shareholders’ Deed includes a number of options for each of AM, AM BV2 and PAC2 to exit their investment in PEAMCoal Holdings and Macarthur. These options include listing the shares in PEAMCoal Holdings, listing the shares of each PEAMCoal Holdings shareholder, divestments to third parties (with corresponding tag-along rights by AM or AM BV2 where Peabody sells its stake in PEAMCoal Holdings) and share transfers amongst the shareholders pursuant to rights of first offer. In addition, during the first 2 years following the Offer being or being declared freed from defeating conditions, AM may require PAC2 to purchase AM BV2 (and so obtain all of the shares in PEAMCoal Holdings). (e) Transfer restrictions: PAC2 and AM BV2 are prohibited from transferring their shares in PEAMCoal Holdings other than in accordance with the deed and each PEAMCoal Holdings shareholder has a right of first offer if the other wishes to sell its shares in PEAMCoal Holdings to a third party. (f) Change of control: the Shareholders’ Deed provides that, subject to limited exceptions, if a shareholder ceases to be a wholly owned subsidiary of its current ultimate holding company, it is a default event which entitles the non-defaulting shareholder to purchase the defaulting shareholder’s shares for market value. (g) Funding: while Macarthur is listed, the funding requirements of Macarthur will be determined by the Macarthur Board subject to its overriding fiduciary duties. It is proposed that funding will be sourced first from Macarthur cash reserves, then from unsecured third party debt, then from PEAMCoal Holdings shareholder loans and then from share issues. If Macarthur is delisted, the shareholders agree that funds will not be raised which exceed the group’s expected 60 day cash requirements. (h) Distributions: the Shareholders’ Deed sets out the PEAMCoal Holdings shareholders’ current intention for dividends which are: • PEAMCoal Holdings and PEAMCoal dividend: for so long as they are not operating companies, PEAMCoal Holdings and PEAMCoal will distribute all distributions that each receives, subject to the directors’ discretion to retain funds to meet future capital needs and for any other reason or purpose that the directors consider to be necessary in view of their fiduciary duties. • Macarthur dividend: Macarthur will continue to pay a dividend consistent with its existing practice. The determination of the dividend will be a matter for the Macarthur Board and will be subject to the Macarthur directors’ fiduciary duties. (i) These above statements are statements of current intentions only and could change. The decision to pay dividends is subject to law and the statutory and fiduciary duties of the directors of the applicable companies. Offtake arrangements: the Shareholders’ Deed contains provisions in connection with ArcelorMittal Group’s existing offtake agreement with a member of the Macarthur Group. It provides that the agreement will continue in accordance with its terms and that the parties will use commercially reasonable endeavours to have the relevant Macarthur Group member and the relevant ArcelorMittal Group member agree final terms for deliveries during each pricing period and failing such agreement the ArcelorMittal 36
Group member will be entitled to purchase the same volume of products on terms no less favourable to the ArcelorMittal Group member when compared to the terms offered to Macarthur Group’s other long-term contract customers of comparable term and annual and total volumes. Appropriate adjustments may need to be made for, among other things, differences in coal quality and how freight costs are borne. These arrangements are always subject to the matters referred to in section 8.3(b). (j) Marketing and logistics: the Shareholders’ Deed sets out a number of principles in relation to marketing Macarthur products. Implementation of these principles is subject to legal restrictions, including the Corporations Act, any applicable law and while Macarthur remains listed, the Listing Rules. This may result in disinterested Macarthur Shareholders needing to approve implementation of the arrangements. Key principles include: • new transactions between Macarthur and Peabody Group members and Macarthur and ArcelorMittal Group members involving more than 200,000 tonnes (either individually or cumulatively by multiple identical transactions to subvert that threshold) will require express written approval of PAC2 and AM BV2. Any value created by such transactions will be shared by Macarthur and PAC2 or AM BV2 on arms’ length terms; • transactions involving less than 200,000 tonnes between Macarthur and Peabody Group members or Macarthur and ArcelorMittal Group members which are on at least arms’ length terms will not require PEAMCoal Holdings shareholder approval; • the chief marketing officer will be a PAC2 appointee and AM BV2 will be able to appoint a person to a senior marketing role, a person to a marketing researcher role and a person to a technical marketing role; • any non-standard sales contracts (i.e. term longer than 3 years or annual tonnage is in excess of 1.5 million tonnes per year or 20% of expected annual production or contract pricing is less then 85% of budget and/or approved pricing levels and methodology) will require approval by PAC2 and AM BV2 directors on the Macarthur Board; • logistics contracts (port and rail) for new capacity which are on non-standard terms (i.e. term is greater than 2 years or total throughput tonnage exceeds 2 million tonnes per year or logistics contract would result in total capacity being more than 10% in excess of what is required to achieve current approved budgets) will require approval by PAC2 and AM BV2 directors on the Macarthur Board; and • AM BV2 will lose these rights if it ceases to hold at least 20% of the shares in PEAMCoal Holdings. (k) Confidentiality: PAC2 and AM BV2 have agreed confidentiality protocols to protect against the disclosure of commercially sensitive information to parts of the PEAMCoal Holdings Shareholder group which is involved in the business of consuming coal. The confidentiality protocols contemplate information barriers being put in place or the redaction of commercially sensitive information. 10.4 Pre-Bid Acceptance Deed AM and PEAMCoal have entered into a Pre-Bid Acceptance Deed. A draft of the Pre-Bid Acceptance Deed was released to the ASX on 13 July 2011 and is available at www.asx.com.au. The final version of the Pre-Bid Acceptance Deed as entered into between the parties was not different from the version released to the ASX on 13 July 2011. The key terms of the Pre-Bid Acceptance Deed are that AM will procure: • the acceptance of the Offer in respect of the 48,552,062 Shares it owns by no later than the second Business Day after the date on which PEAMCoal notifies the ASX that it has a Relevant Interest in, and the acceptance collection agent under any institutional acceptance facility relating to the Offer has received acceptance instructions in respect of the Offer for, at least 50.01% of the Shares (including the 48,552,062 Shares); and • that, once accepted, the above acceptance not be withdrawn, even if the acceptance may be withdrawn by law, under the terms of the Offer or otherwise. 10.5 Deed of Guarantee Peabody Energy, PAC2, ArcelorMittal, AM, AM BV2 and PEAMCoal Holdings have entered into a Deed of Guarantee. A draft of the Deed of Guarantee was released to the ASX on 13 July 2011 and is available at www.asx.com.au. The final version of the Deed of Guarantee as entered into between the parties was not materially different from the version released to the ASX on 13 July 2011. The key terms of the Deed of Guarantee are that: • Peabody Energy guarantees to AM and AM BV2, the obligations of PAC2 under the Co-operation and Contribution Agreement and the Shareholders’ Deed; and • ArcelorMittal guarantees to PAC2 and PEAMCoal Holdings, the obligations of AM and AM BV2 under the Co-operation and Contribution Agreement, the Shareholders’ Deed and the Pre-Bid Acceptance Deed. 10.6 Macarthur dividends Under the terms of the Offer, Macarthur may announce, declare or pay the Permitted FY11 Dividend without any reduction being made by PEAMCoal to the Offer price. If Macarthur announces, declares or pays: • any dividend or distribution (other than the Permitted FY11 Dividend), PEAMCoal will be entitled to reduce the Offer price by the amount of any such dividend or distribution; and • any dividend or distribution (other than the Permitted FY11 Dividend, any Permitted Other Dividend or any dividend or distribution announced, declared or paid with the prior written consent of PEAMCoal), PEAMCoal will have a right to withdraw the Offer as this will trigger the defeating condition contained in section 11.7(i)(12). 10.7 Broker handling fee arrangements As at the date of this Bidder’s Statement, PEAMCoal had not made a decision as to whether to offer to pay a commission to brokers who solicit acceptances of the Offer by a Macarthur Shareholder. However, PEAMCoal reserves the right to introduce such an arrangement. 10.8 Institutional acceptance facility As at the date of this Bidder’s Statement, PEAMCoal had not made a decision as to whether to introduce an institutional acceptance facility in connection with the Offer. However, PEAMCoal reserves the right to introduce such a facility. 10.9 Date for determining holders of Macarthur Shares For the purposes of section 633 of the Corporations Act, the date for determining the people to whom information is to be sent under items 6 and 12 of subsection 633(1) is the Register Date. 10.10 Interests in Shares As at the date of this Bidder’s Statement: • PEAMCoal’s Voting Power in Macarthur was approximately 16.1%; and • PEAMCoal had a Relevant Interest in 48,552,062 Shares. 37
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Bidder's Statement - Peabody Energy

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