Governance - Xstrata

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Significant contractual arrangements Glencore International AG is Xstrata’s major shareholder and at the date of this document holds 34.08% of Xstrata’s issued share capital. The relationship between Xstrata and Glencore is regulated by a Relationship Agreement which ensures that all commercial arrangements are transacted on an arm’s-length basis. Glencore is the sole distributor of Xstrata’s nickel, cobalt and ferronickel production, has sales agreements with Xstrata Copper for some of its copper concentrate and copper cathode and is the marketing agent for much of Xstrata Alloys’ ferrochrome and vanadium. Glencore has a market advisory role with Xstrata Coal. Full details of related party contractual arrangements are provided in Note 36 of the financial statements. The Companies Act 2006 requires the Company to disclose the following significant agreements that contain provisions entitling the counterparties to exercise termination or other rights in the event of a change of control of the Company: Relationship Agreement The Company is party to the Relationship Agreement with Glencore International AG (Glencore) dated 20 March 2002. The Agreement regulates the continuing relationship between the parties. In particular it ensures that (a) the Company is capable of carrying on its business independently of Glencore as a controlling shareholder (as such term is defined in the Agreement); (b) transactions and relationships between Glencore (or any of its subsidiaries or affiliates) and the Company are at an arm’s length and on normal commercial terms; (c) Glencore shall be entitled to nominate up to three directors or (if lower or higher) such number of directors equal to one less than the number of directors who are independent directors; and, (d) directors of the Company nominated by Glencore shall not be permitted to vote on any Board resolution, unless otherwise agreed by the independent directors, to approve any aspect of the Company’s involvement in or enforcement of any arrangements, agreements or transactions with Glencore or any of its subsidiaries or affiliates. The Agreement provides that, save to the extent required by law, the parties agree that they shall exercise their powers so that the Company is managed in accordance with the principles of good governance set out in the Combined Code and that the provisions of the Code of Best Practice set out in the Combined Code are complied with by the Company. It is expressed that the Agreement terminates in the event that Glencore ceases to be a controlling shareholder of the Company following a sale or disposal of shares in the Company or if the Company ceases to be listed on the Official List and traded on the London Stock Exchange. US$4.68 billion syndicated facility On 25 July 2007, Xstrata (Schweiz) AG and Xstrata Finance (Canada) Limited entered into a $4.68 billion multicurrency revolving syndicated loan facility agreement with, amongst others, Barclays Capital and The Royal Bank of Scotland plc (as arrangers and bookrunners), Barclays Bank plc (as the facility agent), and the banks and financial institutions named therein as lenders (the Syndicated Facilities Agreement). Upon a change of control, no borrower may make a further utilisation unless otherwise agreed. The majority lenders, as defined in the agreement, can also require that the Syndicated Facilities Agreement is immediately terminated and declare that all outstanding loans www.xstrata.com | 107 become immediately payable. Alternatively, if the majority lenders do not require cancellation, but a specific lender does on the basis of internal policy, that particular lender can require that its commitments are cancelled and all amounts outstanding in respect of that lender’s commitments shall become immediately payable. US$500 million notes due 2037 On 30 November 2007, Xstrata Finance (Canada) Limited issued $500 million 6.90% notes due 2037, guaranteed by the Company, Xstrata (Schweiz) AG and Xstrata Finance (Dubai) Limited. The terms of these notes require Xstrata Finance (Canada) Limited to make an offer to each noteholder to repurchase all or any part of such holder’s notes at a repurchase price in cash equal to 101% of the aggregate principal amount of the notes so repurchased plus any accrued and unpaid interest on the principal amount of the notes repurchased to the date of repurchase, if both of the following occur: (i) a change of control (as defined in the terms and conditions of the notes) of Xstrata; and (ii) the notes are rated below investment grade by each of Moody’s and Standard & Poor’s on any date from 30 days prior to the date of the public notice of an arrangement that could result in a change of control (as defined in the terms and conditions of the notes) until the end of the 60-day period following public notice of the occurrence of a change of control. €750 million notes due 2011 On 23 May 2008, Xstrata Canada Financial Corporation issued €750,000,000 5.875% guaranteed notes due 2011, €600,000,000 6.25% guaranteed notes due 2015 and £500,000,000 7.375% guaranteed notes due 2020 (the 2008 MTN Notes). The 2008 MTN Notes are guaranteed by each of Xstrata plc, Xstrata (Schweiz) AG, Xstrata Finance (Dubai) Limited and Xstrata Finance (Canada) Limited and were issued pursuant to the $6,000,000,000 Euro Medium Term Note Programme. Pursuant to the terms and conditions of the 2008 MTN Notes, if: (i) a change of control occurs (as defined in the terms and conditions of the 2008 MTN Notes); and (ii) the 2008 MTN Notes carry, on the relevant announcement date of the change of control: (a) an investment grade credit rating is either downgraded to a non-investment grade credit rating or is withdrawn; or (b) a non-investment grade credit rating is downgraded by one or more notches or is withdrawn; or (c) no credit rating and a negative rating event (as defined in the terms and conditions of the 2008 MTN Notes) occurs, each holder has the option to require Xstrata Canada Financial Corp. to redeem such 2008 MTN Notes in cash at the principal amount plus interest accrued to (but excluding) the date of redemption. Overview Strategy Performance Governance Financials
108 | Governance Directors’ report continued US$4 billion revolving loan facility On 17 September 2010, the Company entered into a new $4 billion facility split into two $2 billion tranches, with one tranche maturing three years after the date of the new facility and the other maturing five years after the date of the new facility guaranteed, amongst others, by the Company, Xstrata (Schweiz) AG, Xstrata Finance (Canada) Limited, Xstrata Finance (Dubai) Limited and Xstrata Canada Financial Corporation as guarantors, and the banks and financial institutions named therein as lenders. This agreement contains change of control provisions, in substance, identical to those set out in the referenced Syndicated Facilities Agreement on page 107. Xstrata plc Long Term Incentive Plan The rules of Xstrata’s employee share plans set out the consequences of a change of control of the Company on employees’ rights under the plans. Generally such rights will vest on a change of control and participants will become entitled to acquire shares in the Company or, in some cases, to the payment of a cash sum of equivalent value. Articles of Association Xstrata’s Articles of Association (adopted by special resolution on 19 March 2002 and amended by special resolutions passed on 9 May 2005, 6 May 2008, and 5 May 2010) may only be amended by special resolution at a general meeting of the shareholders. Share rights The rights and obligations attached to Xstrata’s ordinary shares are set out in the Articles of Association, copies of which can be obtained from Companies House in the UK or by writing to the Company Secretary. Subject to the Companies Acts (as defined in the Articles of Association), and without prejudice to any rights attached to any existing shares or class of shares, any share may be issued with such rights or restrictions as the Company may by ordinary resolution determine or, subject to and in default of such determination, as the Board may determine. Ordinary shares Holders of ordinary shares are entitled to attend, speak and vote at general meetings of the Company, and to appoint proxies to exercise their rights. Holders of ordinary shares may receive a dividend and on a winding up may share in the assets of the Company. Deferred shares The holders of deferred shares do not have the right to receive notice of any general meeting of the Company nor the right to attend, speak or vote at any such general meeting. The deferred shares have no rights to dividends and, on a winding up or other return of capital, entitle the holder only to the repayment of the amounts paid upon such shares after repayment of the nominal amount paid up on the ordinary shares, the nominal amount paid up on the special voting share plus the payment of £100,000 per ordinary share. The Company may, at its option, redeem all of the deferred shares in issue at any time (but subject to the minimum capital requirement of the Companies Act 2006) at a price not exceeding £1.00 for each share redeemed to be paid to the relevant registered holders of the shares. Special voting share Certain rights, that are inalienable under Swiss law, have been preserved in the Xstrata plc Articles of Association by creating a special voting share that carries weighted voting rights sufficient to defeat any resolution that could amend or remove these entrenched rights. The holder of the special voting share is the Law Debenture Trust Corporation plc which has entered into a voting agreement with the Company, specifying the conditions upon which it is entitled to exercise its right to vote. The special voting share does not carry a right to receive dividends and is entitled to no more than the amount of capital paid up in the event of liquidation. Shares held by Xstrata plc Employee Share Ownership Trusts at 31 December 2010, the trustee of the Xstrata plc Employee Share Ownership Trusts, which is an independent trustee, 6,884,930 shares under the terms of the trusts for the benefit of employees and former employees of the Company. The trusts are discretionary trusts and the shares are held to meet employees’ entitlements under the Company’s Long Term Incentive Plan and Executive Committee Bonus Plan. Employees have no voting rights in relation to the shares while they are held in trust. The trustee has full discretion to exercise the voting rights or to abstain from voting. Shares acquired by employees through the Company’s Long Term Incentive Plan rank pari passu with shares in issue and have no special rights. The trustee of the Employee Share Ownership Trusts waives its right to receive dividends on ordinary shares that it holds from time to time. Voting rights Subject to the rights and restrictions attached to any class of shares: (i) on a show of hands, every member present in person or by proxy has one vote (save that neither the holder of the special voting share nor any holder of deferred shares shall be entitled to vote) and a proxy appointed by a member on behalf of such member’s shareholding shall also have one vote; (ii) on a poll: (a) every member present in person or by proxy (except the holder of the special voting share and any holder of the deferred shares shall have: (i) one vote for each fully paid share; and (ii) for each partly-paid share, such proportion of the votes attached to a fully paid share as would mean that such proportion is the same as the proportion of the amount paid up on the total issue price of that share; (b) the holder of the special voting share shall, on an Entrenched Rights Action, have enough votes to defeat the resolution but, on all other decisions, shall have no votes; and (c) the holders of the deferred shares shall not be entitled to vote.
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Governance - Xstrata

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