This circular is important and requires your immediate attention. The definitions commencing on page 4 of the circular apply mutatis mutandis to this cover. Action required If you are in any doubt as to what action you should take arising from the circular, please consult your broker, CSDP, banker, accountant, attorney or other professional adviser immediately. If you have disposed of all of your shares in Keaton Energy, please forward the circular to the purchaser of such shares or to the broker, CSDP, banker, accountant, attorney or other agent through whom the disposal was effected. (Incorporated in the Republic of South Africa) (Registration number 2006/011090/06) Share code: KEH ISIN: ZAE000117420 ( Keaton Energy or the Company ) Circular to Keaton Energy shareholders regarding the share capital authority to place 16 622 222 authorised but unissued ordinary shares in the share capital of the Company at the disposal and under the control of the directors in order to give effect to and implement the acquisition; and amendments to the Keaton Energy Long-Term Performance Incentive Scheme; a general authority to issue a further 5% of the issued share capital of Keaton Energy for cash, and incorporating a notice convening a general meeting of shareholders; a form of proxy (for use by holders of certificated shares and dematerialised shares with own-name registration only). Investment bank and sponsor Attorneys to Keaton Energy Date of issue: Monday, 23 May 2011
CORPORATE INFORMATION AND ADVISERS Secretary and registered office Michelle Louise Taylor Ground Floor, Eland House The Braes 3 Eaton Road Bryanston, 2191 (Postnet Suite 464, Private Bag X51, Bryanston, 2021) Investment bank and sponsor Nedbank Capital, a division of Nedbank Limited (Registration number 1951/000009/06) 3rd Floor, Corporate Place, Nedbank Sandton 135 Rivonia Road Sandown, 2196 (PO Box 1144, Johannesburg, 2000) Transfer secretaries Computershare Investor Services (Proprietary) Limited (Registration number 2004/003647/07) Ground Floor 70 Marshall Street Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) Attorneys to Keaton Energy Eversheds (Registration number 1992/006150/21) 22 Fredman Drive Sandton, 2196 (PO Box 78333, Sandton City, 2146)
ACTION REQUIRED BY KEATON ENERGY SHAREHOLDERS The definitions commencing on page 4 of the circular apply mutatis mutandis to this action required by Keaton Energy shareholders. Please take careful note of the following provisions regarding the action required by Keaton Energy shareholders: 1. If you have disposed of all of your Keaton Energy shares, the circular should be handed to the purchaser of such shares or the broker, CSDP, banker, accountant, attorney or other agent who disposed of your Keaton Energy shares. 2. If you are in any doubt as to what action to take, please consult your broker, CSDP, banker, accountant, attorney or other professional adviser immediately. 3. The circular contains information relating to the amendments to the share capital authority, the Keaton Energy Long-Term Performance Incentive Scheme and the general issue of shares for cash. You should carefully read through the circular and decide how you wish to vote on the resolutions to be proposed at the general meeting. 4. The general meeting, convened in terms of the notice incorporated in the circular, will be held at Ground Floor, Eland House, The Braes, 3 Eaton Road, Bryanston on Tuesday, 21 June 2011 at 09:00. 5. GENERAL MEETING 5.1 If you hold dematerialised Keaton Energy shares 5.1.1 Own-name registration You are entitled to attend in person, or be represented by proxy, at the general meeting. If you are unable to attend the general meeting but wish to be represented thereat, you must complete and return the attached form of proxy, in accordance with the instructions contained therein, to be received by the transfer secretaries, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) by no later than 09:00 on Friday, 17 June 2011. 5.1.2 Other than own-name registration You are entitled to attend, or be represented by proxy, at the general meeting. You must advise your CSDP or broker timeously if you wish to attend, or be represented at the general meeting. If you do wish to attend or be represented at the general meeting, your CSDP or broker will be required to issue the necessary Letter of Representation to you to enable you to attend or to be represented at the general meeting. You must not complete the attached form of proxy. If your CSDP or broker does not contact you, you are advised to contact your CSDP or broker and provide them with your voting instructions. If your CSDP or broker does not obtain instructions from you, they will be obliged to act in terms of your mandate furnished to them. 5.2 If you hold certificated Keaton Energy shares 5.2.1 You are entitled to attend, or be represented by proxy, at the general meeting. 5.2.2 If you are unable to attend the general meeting, but wish to be represented thereat, you must complete and return the attached form of proxy, in accordance with the instructions contained therein, to be received by the transfer secretaries, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) by no later than 09:00 on Friday, 17 June 2011. 1
TABLE OF CONTENTS The definitions commencing on page 4 of the circular apply mutatis mutandis to this table of contents. Page Corporate information and advisers Inside front cover Action required by Keaton Energy shareholders 1 Salient dates and times 3 Definitions 4 Circular to Keaton Energy shareholders 1. Introduction 7 2. Purpose of the circular 7 3. The share capital authority 7 4. Amendments to the Keaton Energy Long-Term Performance Incentive Scheme 8 5. General issue of shares for cash 8 6. Directors responsibility statement 9 7. Consents 9 8. JSE approval 9 9. Opinion and recommendation 9 10. General meeting 9 11. Documents available for inspection 10 Annexure 1 Amendments to the Keaton Energy Long-Term Performance Incentive Scheme 11 Annexure 2 Salient features of the Keaton Energy Long-Term Performance Incentive Scheme 12 Notice convening a general meeting of Keaton Energy shareholders 15 Form of proxy (for use by holders of certificated shares and dematerialised shares with own-name registration only) Attached 2
SALIENT DATES AND TIMES The definitions commencing on page 4 of the circular apply mutatis mutandis to the salient dates and times as set out below: 2011 Record date for posting of the circular at the close of business on Circular and form of proxy to be posted to shareholders on Forms of proxy to be received by 09:00 on Record date for the general meeting at 09:00 on General meeting to be held at 09:00 on Results of general meeting released on SENS on Results of general meeting published in the press on Friday, 20 May Monday, 23 May Friday, 17 June Friday, 17 June Tuesday, 21 June Tuesday, 21 June Wednesday, 22 June Notes 1. These dates and times are subject to amendment. Any such amendment will be released on SENS and published in the South African press. 2. Copies of this circular may be obtained in English only at the Company s registered office during normal business hours from Monday, 23 May 2011 to Tuesday, 21 June 2011. Details of Keaton Energy are set out in the corporate information and advisers section. 3
DEFINITIONS In this circular, unless otherwise stated or the context otherwise indicates, the words in the first column below shall have the meaning stated opposite them, respectively, in the second column below, reference to the singular shall include the plural and vice versa, words denoting one gender shall include the other gender, and an expression denoting natural persons shall include juristic persons and associations of persons: the acquisition AKMF AKMF preference shares the second step of the transaction, as detailed in paragraph 3.2 of the circular; Anglo American Khula Mining Fund (Proprietary) Limited (Registration number 2002/017946/07), a private company incorporated and registered in South Africa; the 40 preference shares that Keaton Energy will acquire in the share capital of LME from AKMF, representing 40% of LME s preference share capital; Anglo Zimele Anglo American Zimele Limited (Registration number 1975/004445/06), a public company incorporated and registered in South Africa; AOL board or directors bonus award(s) bonus award certificate business day certificated shareholder(s) certificated share(s) Anglo Operations Limited (Registration number 1921/006730/06), acting through its division, Anglo American Thermal Coal, a public company incorporated and registered in South Africa; the board of directors of Keaton Energy from time to time. The current directors names are reflected on page 7 of the circular; a conditional right(s) to receive in cash an amount equal to the increase in value of a certain number of notional shares between the offer date and the exercise date, being the difference between the exercise price and the offer price of that number of notional shares, to be settled by the participating company in accordance with the provisions of Rule 10 of the Keaton Energy Long-Term Performance Incentive Scheme; a document prepared by the participating company which details: the name of the participant to who the bonus award is offered; the number of notional shares in respect of which the bonus award is offered; the offer date; the offer price; any performance targets applicable to the bonus award; and the minimum employment period; a day other than a Saturday, Sunday or official public holiday in South Africa; Keaton Energy shareholder(s) who hold certificated Keaton Energy shares; Keaton Energy share(s) represented by a share certificate(s) or other physical document(s) of title, which have not been surrendered for dematerialisation in terms of the requirements of Strate; the circular this circular, dated Monday, 23 May 2011 including Annexures 1 and 2, the notice of general meeting and the form of proxy; closed period Companies Act conditions CSDP a closed period in relation to the Company as defined in the Listings Requirements; the Companies Act, 71 of 2008, as amended; the performance targets (if applicable) and minimum employment terms as set out in the Keaton Energy Long-Term Performance Incentive Scheme; a Central Securities Depository Participant; 4
dematerialised shareholder(s) Keaton Energy shareholder(s) that have dematerialised their Keaton Energy share(s) through a CSDP and have instructed the CSDP to hold their Keaton Energy share(s) on the sub-register maintained by the CSDP and forming part of the Keaton Energy share register; dematerialised share(s) Keaton Energy share(s) that have been dematerialised through a CSDP or broker and are held on the sub-register of shareholders administered by CSDPs in electronic form; document(s) of title share certificate(s), transfer deed(s) or form(s), balance receipt(s) or any other document(s) of title acceptable to Keaton Energy in respect of certificated shareholder(s); eligible employee an employee or director of a participating company; Eversheds Eversheds (Registration number 1992/006150/21), a private company incorporated and registered in South Africa and the attorneys to Keaton Energy; exercise date the date upon which the participant exercises the bonus award; exercise price the market value on the exercise date; existing share capital authority the authority granted by Keaton Energy shareholders at the Keaton Energy annual general meeting held on 22 July 2010 placing Keaton Energy s authorised but unissued shares in the share capital of Keaton Energy at the disposal and under the control of the directors, provided that the aggregate number of shares which may be allotted and issued by the directors shall be limited to 10% of the number of shares in issue from time to time; general issue of shares for cash a general authority authorising the directors to allot and issue a further 5% of the issued share capital of Keaton Energy for cash in terms of the Listings Requirements; general meeting the general meeting of shareholders to be held at Ground Floor, Eland House, The Braes, 3 Eaton Road, Bryanston on Tuesday, 21 June 2011 at 09:00, to consider and, if deemed appropriate, approve the share capital authority, the amendments to the Keaton Energy Long-Term Performance Incentive Scheme and the general issue of shares for cash; the group Keaton Energy and its subsidiaries, from time to time; IDC Industrial Development Corporation of South Africa Limited (Registration number 1940/014201/06), a company incorporated and registered in South Africa; IFRS International Financial Reporting Standards; JPI JPI Leeuw Mining and Associates (Proprietary) Limited (Registration number 1999/005557/07), a private company incorporated and registered in South Africa; JSE the stock exchange operated by the JSE Limited (Registration number 2005/0222939/06), a public company incorporated and registered in South Africa, licensed as an exchange under the Securities Services Act, No. 36 of 2004, as amended; Keaton Energy or the Company Keaton Energy Holdings Limited (Registration number 2006/011090/06), a public company incorporated and registered in South Africa and the shares of which are listed on the JSE; Keaton Energy Long-Term the Keaton Energy Holdings Long-Term Performance Incentive Scheme Performance Incentive Scheme constituted by the rules, as amended from time to time and approved by the or the Scheme board in 2007; King Code the King Report on Corporate Governance for South Africa, 2009, as amended and/or updated from time to time; Listings Requirements the JSE Listings Requirements, as amended from time to time; 5
LME market value minimum employment period Nedbank Nedbank Capital offer date offer price participant participating company performance targets Remuneration Committee SENS share(s) or Keaton Energy share(s) shareholder(s) or Keaton Energy shareholder(s) the share capital authority South Africa Strate the transaction transfer secretaries or Computershare unconditional VWAP Leeuw Mining and Exploration (Proprietary) Limited (Registration number 2002/000483/07), a private company incorporated and registered in South Africa; in relation to a share on any particular day, the VWAP of the share as traded on the JSE over the ten business days ending on that day; the period which is specified as such in the bonus award certificate; Nedbank Limited (Registration number 1951/000009/06), a public company incorporated and registered in South Africa and a wholly-owned subsidiary of the JSE-listed Nedbank Group Limited; Nedbank Capital, a division of Nedbank Limited and the investment bank and sponsor to Keaton Energy; the date upon which the Remuneration Committee approves the offer of a bonus award to an eligible employee, which date will be specified as such in the bonus award certificate; the market value on the offer date; an eligible employee who has been offered and who has accepted a bonus award or that person s personal representative; any member of the group which is designated as such by the directors and which employs the participant concerned, provided that if a participant s employment with such member of the group is transferred to another member of the group, the reference to participating company shall change with effect from the date of transfer to the latter member of the group; any performance targets referred to in the Keaton Energy Long-Term Performance Incentive Scheme; the remuneration committee of the Company, as constituted from time to time; the Securities Exchange News Service of the JSE; an ordinary share in the capital of the Company, ranking pari passu with the other ordinary shares in the Company; a holder(s) of a share(s); the authority to be granted by Keaton Energy shareholders to place 16 622 222 authorised but unissued shares in the share capital of the Company at the disposal and under the control of the directors, with specific authority to the directors to allot and issue such shares in order to give effect to and implement the acquisition; the Republic of South Africa; Strate Limited (Registration number 1998/022242/06), a company incorporated in South Africa and the electronic settlement system for transactions that take place on the JSE and off-market trades; the acquisition by Keaton Energy of a 74% interest in LME and related matters, the details of which were contained in an announcement released on SENS on 14 February 2011 and set out in paragraph 3 of the circular; Computershare Investor Services (Proprietary) Limited (Registration number 2004/003647/07), a private company incorporated and registered in South Africa and the transfer secretaries to Keaton Energy; in relation to a bonus award, that the Remuneration Committee determines that the conditions have been fulfilled; and volume weighted average price. 6
(Incorporated in the Republic of South Africa) (Registration number 2006/011090/06) Share code: KEH ISIN: ZAE000117420 ( Keaton Energy or the Company ) Directors David Salter# (Chairman) Paul Miller (Managing Director) Mandi Glad (Business Development and Marketing Director) Lizwi Mtumtum# Peet Snyders (Operations Director) # Independent non-executive * Non-executive Phoevos Pouroulis* Paul Sadler# Johan Schönfeldt (Financial Director) Antoinette Sedibe* CIRCULAR TO KEATON ENERGY SHAREHOLDERS 1. INTRODUCTION Keaton Energy shareholders are advised that the board proposes, subject to shareholder approval, the following: 1.1 the share capital authority, placing 16 622 222 authorised but unissued shares in the share capital of Keaton Energy at the disposal and under the control of the directors, in order to give effect to and implement the acquisition, details of which are set out in paragraph 3 below; 1.2 various amendments to the Keaton Energy Long-Term Performance Incentive Scheme to achieve compliance with Schedule 14 of the Listings Requirements; and 1.3 the general issue of shares for cash, which will allow for an additional 5% of the Company s share capital to be issued for cash. 2. PURPOSE OF THE CIRCULAR The purpose of the circular is to provide shareholders with the relevant information relating to the share capital authority, the amendments to the Keaton Energy Long-Term Performance Incentive Scheme and the general issue of shares for cash, the implications thereof and to enable shareholders to make an informed decision as to whether or not they should vote in favour of the requisite resolutions necessary to give effect thereto. 3. THE SHARE CAPITAL AUTHORITY On 14 February 2011, an announcement was released on SENS containing the details of the acquisition by Keaton Energy of a 74% interest in LME. The transaction is classified as a Category 2 transaction in terms of the Listings Requirements, which does not per se require shareholder approval. However, the acquisition, the details of which are set out in paragraph 3.2 below, does require the directors to allot and issue a maximum of 16 622 222 shares, being in excess of the limit granted by shareholders to the directors under the existing share capital authority. Therefore, the board proposes, subject to shareholder approval, the share capital authority which will place 16 622 222 authorised but unissued shares in the share capital of Keaton Energy at the disposal and under the control of the directors, allowing the Company to give effect to and implement the acquisition. 7
3.1 Step 1: the refinancing As the first stage of the transaction, Keaton Energy has acquired from AOL various loans and claims in LME for a total consideration of R46 999 998 to be satisfied by the issue of 10 444 444 new Keaton Energy shares at a price of R4.50 per share. Keaton Energy has also acquired the AKMF preference shares, for a total consideration of R8 000 001 to be satisfied by the issue of 1 777 778 new Keaton Energy shares at a price of R4.50 per share. The balance of the preference shares in the share capital of LME is held by the IDC. The refinancing was implemented on 20 February 2011, with an effective date of 30 September 2010 and a total of 12 222 222 shares have been issued under the existing share capital authority. 3.2 Step 2: the acquisition In the second stage of the transaction, Keaton Energy will acquire 64% of the ordinary issued shares in LME from existing shareholders, being 54% from JPI and 10% from Anglo Zimele, respectively. Once all regulatory approvals have been received and conditions precedent fulfilled or waived, as the case may be, Keaton Energy will issue 14 177 778 new Keaton Energy shares to JPI and 2 444 444 new Keaton Energy shares to Anglo Zimele respectively, in consideration for the ordinary issued shares in LME acquired by Keaton Energy from JPI and Anglo Zimele, respectively. The new Keaton Energy shares will be issued at a price of R4.50 per share, resulting in an aggregate purchase consideration of R74 799 999. 3.3 Step 3: the conversion 10% of LME s issued ordinary share capital is presently held as treasury shares by a wholly-owned subsidiary of LME. Keaton Energy will acquire these shares from LME s subsidiary, Leeuw Braakfontein Colliery (Proprietary) Limited, through the settlement of a R10 million convertible loan recently provided by Keaton Energy to LME. 4. AMENDMENTS TO THE KEATON ENERGY LONG-TERM PERFORMANCE INCENTIVE SCHEME The amendments to the Keaton Energy Long-Term Performance Incentive Scheme have been proposed to ensure compliance with Schedule 14 of the Listings Requirements and include, inter alia, the following: 4.1 amendments to both the scheme limit and individual limit available under the Keaton Energy Long-Term Incentive Scheme to exclude any reference to a percentage limit; and 4. 2 inclusion of new paragraphs relating to adjustments to shares which may be utilised for purposes of the scheme as well as the fixed number of shares for any one Participant. A complete overview of the amendments to the Keaton Energy Long-Term Incentive Scheme are set out in Annexure 1 to the circular. In addition, the salient features of the Keaton Energy Long-Term Incentive Scheme are set out in Annexure 2 to the circular. 5. GENERAL ISSUE OF SHARES FOR CASH At the annual general meeting of Keaton Energy shareholders held on 22 July 2010, shareholders approved a general authority allowing the directors to issue up to 10% of the Company s issued share capital for cash. As announced on 28 February 2011, the directors have now issued a total of 10% of the Company s issued share capital in two tranches, as follows: 5.1 5 555 556 shares at R4.50 per share, representing 3.84% of the issued share capital of Keaton Energy on 30 December 2010; and 5.2 8 928 573 shares at R4.50 per share, representing 6.16% of the issued share capital of Keaton Energy on 25 February 2010. The proceeds of the abovementioned issues of shares for cash were utilised for the pursuit of new business opportunities, in particular the opportunities presented by the transaction. In order to enable Keaton Energy to pursue additional business opportunities, the directors of Keaton Energy propose the general issue of shares for cash, allowing for an additional 5% of the Company s issued share capital to be issued for cash. 8
The resolution to approve the general issue of shares for cash will be valid until Keaton Energy s next annual general meeting. 6. DIRECTORS RESPONSIBILITY STATEMENT The directors of Keaton Energy: have considered all statements of fact and opinion in the circular; collectively and individually, accept full responsibility for the accuracy of the information given; certify that, to the best of their knowledge and belief, there are no other facts, the omission of which would make any statement false or misleading; have made all reasonable enquiries in this regard; and certify that, to the best of their knowledge and belief, the circular contains all information required by law, as required by the Listings Requirements. 7. CONSENTS Nedbank Capital and Eversheds have provided their written consent to act in the capacity stated and to their names being used in the circular and have not withdrawn their consents prior to the publication of the circular. 8. JSE APPROVAL The circular has been submitted to and approved by the JSE. 9. OPINION AND RECOMMENDATION 9.1 The directors are of the opinion that the share capital authority, the amendments to the Keaton Energy Long-Term Performance Incentive Scheme and the general issue of shares for cash will be beneficial to Keaton Energy and its shareholders and recommend that shareholders vote in favour of the necessary resolutions to be proposed at the general meeting. 9.2 The directors of Keaton Energy with interests in the Company intend to vote in favour of the resolutions to be proposed at the general meeting to approve the share capital authority, the amendments to the Keaton Energy Long-Term Performance Incentive Scheme and the general issue of shares for cash. 10. GENERAL MEETING 10.1 Notice of general meeting The notice convening the general meeting to approve the share capital authority, the amendments to the Keaton Energy Long-Term Performance Incentive Scheme and the general issue of shares for cash is attached to the circular. The general meeting will be held at Ground Floor, Eland House, The Braes, 3 Eaton Road, Bryanston commencing at 09:00 on Tuesday, 21 June 2011. 10.2 Dematerialised shareholders, other than own-name dematerialised shareholders If you have not been contacted by your CSDP or broker, it would be advisable for you to contact your CSDP or broker and furnish them with your instructions. If your CSDP or broker does not obtain instructions from you, they will be obliged to act in terms of your mandate furnished to them. Holders of dematerialised Keaton Energy shares, other than own-name dematerialised shareholders, must not complete the attached form of proxy. Unless you advise your CSDP or broker in the manner and cut-off time stipulated by your CSDP or broker, that you wish to attend the general meeting or send a proxy to represent you at the general meeting, your CSDP or broker will assume you do not wish to attend the general meeting or send a proxy. If you wish to attend the general meeting, you must request your CSDP or broker to issue the necessary Letter of Representation to you, to enable you to attend or be represented at the general meeting. 9
10.3 Own-name dematerialised shareholders and certificated shareholders If your Keaton Energy shares have been dematerialised but are recorded in the register of Keaton Energy in your own -name or if your Keaton Energy shares have not been dematerialised you can attend and vote at the general meeting. If you are unable to attend the general meeting and wish to be represented thereat, you must complete the attached form of proxy in accordance with the instructions therein and lodge it with or post it to the transfer secretaries, to be received by no later than 09:00 on Friday, 17 June 2011 (or 48 hours before any adjourned general meeting which date, if necessary, will be notified on SENS and in the press). A form of proxy, for use at the general meeting by own-name shareholders and certificated shareholders only, is included with the circular. Instructions for its completion and lodging with the transfer secretaries are contained on such form. 10.4 Shareholder approval In terms of the Listings Requirements, Ordinary Resolution Number 2 and Ordinary Resolution Number 3 of the attached notice of general meeting require the approval of a 75% majority of the votes cast by shareholders present or represented by proxy at the general meeting. In terms of the Listings Requirements, Ordinary Resolution Number 1 and Ordinary Resolution Number 4 of the attached notice of general meeting requires the approval of a 50% majority of the votes cast by shareholders present or represented by proxy at the general meeting 10.5 Voting rights All issued Keaton Energy shares rank pari passu with each other. At the general meeting, every shareholder present or represented by proxy shall have one vote on a show of hands, and on a poll, one vote for every Keaton Energy share held. 11. DOCUMENTS AVAILABLE FOR INSPECTION The following documents, or copies thereof, will be available for inspection during normal business hours at the registered office of Keaton Energy, from the date of the circular up to and including the date of the general meeting: a signed copy of this circular; the 2010 annual report of Keaton Energy; the announcement, dated 14 February 2011, setting out details of the transaction; the announcement, dated 28 February 2011, setting out details of the general issues of shares for cash totalling 10% of the Company s issued share capital; the memorandum and articles of association of Keaton Energy; the Keaton Energy Long-Term Performance Incentive Scheme; and the written consents of Nedbank Capital and Eversheds as set out in paragraph 7 above. This circular is signed at Bryanston on behalf of all the directors in terms of powers of attorney granted on 6 May 2011. P B M Miller Managing Director Monday, 23 May 2011 Bryanston Secretary and registered office Michelle Louise Taylor Ground Floor, Eland House The Braes 3 Eaton Road Bryanston, 2191 (Postnet Suite 464, Private Bag X51, Bryanston, 2021) 10
Annexure 1 AMENDMENTS TO THE KEATON ENERGY LONG-TERM PERFORMANCE INCENTIVE SCHEME The amendments to the Keaton Energy Long-Term Performance Incentive Scheme are as follows: 1. The introductory paragraph has been amended to include a statement that the Keaton Energy Long-Term Performance Incentive Scheme will not be used for trading purposes. 2. Paragraph 4 of the Keaton Energy Long-Term Performance Incentive Scheme relating to scheme limits has been amended to exclude any reference to a percentage and the number of shares available under the Keaton Energy Long-Term Performance Incentive Scheme is limited to 28 225 479 shares. 3. Paragraph 5 of the Keaton Energy Long-Term Performance Incentive Scheme relating to individual limits has been amended to exclude any reference to a percentage and the number of shares available to any one individual under the Keaton Energy Long-Term Performance Incentive Scheme is limited to 5 645 095 shares. 4. Insertion of the following new Paragraphs 6.2, 6.3 and 6.4 under Paragraph 6 relating to variation in share capital as follows: 4.1 New Paragraph 6.2: Adjustment to number of shares which may be utilised for purposes of the Scheme If there is a variation in the equity share capital of the Company as a result of a sub-division or consolidation, the number of shares which may be utilised for purposes of the Scheme must be adjusted to give Participants entitlement to the same proportion of the equity capital as that to which Participants were previously entitled. 4.2 New Paragraph 6.3: Adjustment to the fixed maximum number of shares for any one Participant If there is a variation in the equity share capital of the Company as a result of a capitalisation issue, a specific dividend, a rights issue or reduction of capital, the fixed maximum number of shares which may be utilised for any one Participant under the Scheme may be adjusted to give a Participant entitlement to the same proportion of the equity capital as that to which a Participant was previously entitled. 4.3 New Paragraph 6.4: The issue of shares as consideration for an acquisition, the issue of shares for cash and the issue of shares for a vendor consideration placing will not require any adjustment. 5. Paragraph 7.1 of the Keaton Energy Long-Term Performance Incentive Scheme relating to lapse of bonus awards has been amended to include reference that if a bonus award has lapsed, the bonus award will revert back to the Scheme. 6. Paragraph 8.1.5 of the Keaton Energy Long-Term Performance Incentive Scheme relating to the termination of employment and lapse of bonus awards has been amended to include reference that if a bonus award has lapsed, the bonus award will revert back to the Scheme and is of no further force or effect. Paragraphs 13.1 and 13.4 of the Keaton Energy Long-Term Performance Incentive Scheme relating to changing the Scheme and termination have been amended to clarify when directors may amend the Scheme without JSE and shareholder approval. 11
Annexure 2 SALIENT FEATURES OF THE KEATON ENERGY LONG-TERM PERFORMANCE INCENTIVE SCHEME 1. The Keaton Energy Long-Term Performance Incentive Scheme has been established by Keaton Energy in terms of which eligible employees will receive a bonus award equal to the increase in the value of the notional shares between the date on which the Remuneration Committee approves the offer of the bonus award to the date of exercise of the bonus award. In normal circumstances, the bonus award is to be applied exclusively to the subscription and/or purchase of Keaton Energy shares. A summary of the main terms of the Keaton Energy Long-Term Performance Incentive Scheme is set out below: 1.1 Eligibility Directors (including non-executive directors) and employees of any participating company are eligible to participate in the Keaton Energy Long-Term Performance Incentive Scheme. 1.2 Offers of bonus awards Bonus awards will be offered in terms of bonus award certificates to eligible employees on the recommendation of the Remuneration Committee. Subject to any restrictions imposed by the King Code, the Listings Requirements or any other laws or regulations applicable to the offering of the bonus awards, the bonus awards will normally be offered within 60 days from the date of announcement of Keaton Energy s annual results. At the discretion of the Remuneration Committee, bonus awards may be offered at other times, subject to the provisions of the King Code, the Listings Requirements and any other applicable laws and regulations. 1.3 Performance conditions 1.3.1 The offer of bonus awards will be conditional upon the achievement of performance targets as specified in the bonus award certificates, over a performance period which will usually be three financial years. At the discretion of the Remuneration Committee, bonus awards may be granted without performance targets. 1.3.2 In addition to any performance targets referred to in clause 1.3.1 above, bonus awards will in all cases be further conditional upon the participant being and remaining employed with the group over the minimum employment period. If a participant ceases to be employed within the group during the minimum employment period, all the participant s bonus awards will lapse. 1.4 Limits 1.4.1 The total number of Keaton Energy shares which are to be issued and/or transferred to a participant under the Keaton Energy Long-Term Performance Incentive Scheme in any 10 year span, when added to the number of such shares which are to be issued and transferred to the same participant under all other employee share-based schemes operated by Keaton Energy, must not exceed 5 645 095 shares. 1.4.2 The number of Keaton Energy shares which are issued under the Keaton Energy Long-Term Performance Incentive Scheme in any 10 year span, when added to the number of such shares which may be issued in the same period under all other employee share based schemes operated by Keaton Energy, must not exceed 28 225 479 shares. 1.5 Exercise Bonus awards may be exercised at any time between the date that they become unconditional and the sixth anniversary of the offer date. If the Company is in a closed period on the date of exercise, the date of exercise will automatically be extended to the first business day after the end of the closed period. 12
1.6 Exercise price On the exercise date, the exercise price will be used as the value against which the offer price is to be deducted to determine the value of the bonus awards granted to participants. The value of and amount due to participants in term of the bonus awards will, subject to the achievement of any applicable performance targets and the fulfilment of the minimum employment period, be the difference between the exercise price and the offer price multiplied by the number of notional shares in the bonus award. 1.7 Settlement Within 20 business days of the exercise date, the participating company will settle the amount due to participants in terms of the bonus award by the payment of such amount to a broker or other person specifically appointed by the participating company as agent for and on behalf of the participant, which amount is to be applied exclusively towards the obligatory subscription and/or purchase of Keaton Energy shares. The Remuneration Committee shall determine and notify the participant whether the payment is to be applied towards the subscription and/or purchase of Keaton Energy shares. 1.8 Employees tax Participants shall be liable for their tax liability arising from participation in the Keaton Energy Long-Term Performance Incentive Scheme. 1.9 Takeovers Should there be a takeover of Keaton Energy, bonus awards will be deemed to become unconditional and may be exercised within three months thereafter. 1.10 Termination of employment for good cause 1.10.1 In the event that a participant s employment with the group is terminated by reason of death, ill health, incapacity or redundancy, the Remuneration Committee may in its absolute discretion: 1.10.1.1 deem a pro rata portion of the bonus award to become unconditional and to be capable of being exercised within three months. In exercising their discretion, the Remuneration Committee will take into consideration, among other things, the extent to which the performance targets have been satisfied and the proportion of the minimum employment period which has expired; or 1.10.1.2 allow the Keaton Energy Long-Term Performance Incentive Scheme to continue to apply to the whole or any portion of the bonus awards which were made to the participant, as though he or she had not ceased to be an employee. 1.10.2 If employment ceases due to retirement at normal retirement age, the Keaton Energy Long-Term Performance Incentive Scheme will continue to apply to all bonus awards made to the participant as if he or she had not ceased to be an employee. 1.11 Variation in share capital, adjustments to bonus awards Following a variation in the share capital of Keaton Energy, the Remuneration Committee may adjust the number of shares comprising each bonus award and/or the offer price, in any way that the Remuneration Committee considers appropriate so that the value of the bonus awards granted to participants is materially similar to the value applicable prior to the variation, provided that any such adjustments are confirmed by Keaton Energy s auditors as having been calculated on a reasonable basis. 1.12 Amendments of the Keaton Energy Long-Term Performance Incentive Scheme The directors of Keaton Energy will be authorised to make amendments they consider appropriate to the rules of the Keaton Energy Long-Term Performance Incentive Scheme, subject firstly to the approval having been obtained from the JSE (where required) and subject further to Keaton Energy shareholders in general meeting approving such amendments if the amendments relate to: 1.12.1 the persons who are eligible to be granted bonus awards; 1.12.2 the incentive scheme and individual limits provided for above; 13
1.12.3 the determination of the offer price and the exercise price and the amounts payable to participants in terms of the Keaton Energy Long-Term Performance Incentive Scheme; and 1.12.4 the rights of participants in respect of voting, dividends, transfer and other rights in respect of the shares subscribed for and/or purchased pursuant to the settlement of their bonus awards. The directors of Keaton Energy may make minor amendments to the Keaton Energy Long-Term Performance Incentive Scheme without prior shareholder approval to benefit the administration of the Keaton Energy Long-Term Performance Incentive Scheme, to take into account any change in legislation or accounting practice or to obtain and maintain favourable tax, exchange control or regulatory treatment, provided that the prior approval of the JSE is obtained to any such change, if and to the extent that such prior approval is requisite. 14
(Incorporated in the Republic of South Africa) (Registration number 2006/011090/06) Share code: KEH ISIN: ZAE000117420 ( Keaton Energy or the Company ) NOTICE CONVENING A GENERAL MEETING OF KEATON ENERGY SHAREHOLDERS Notice is hereby given that a general meeting of Keaton Energy shareholders will be held at Ground Floor, Eland House, The Braes, 3 Eaton Road, Bryanston on Tuesday, 21 June 2011 at 09:00, for the purpose of considering and, if deemed fit, passing with or without modification the ordinary resolutions set out in this notice of general meeting. ORDINARY RESOLUTION NUMBER 1 Specific authority to allot and issue 16 622 228 ordinary shares in order to give effect to and implement the acquisition RESOLVED THAT, as a specific authority in terms of and subject to the provisions of the Companies Act 71 of 2008, as amended ( the Act ), the Company s memorandum of incorporation and the JSE Limited ( the JSE ) Listings Requirements, 16 622 222 ordinary shares in the authorised but unissued ordinary shares in the capital of the Company, be and are hereby placed at the disposal and under the control of the directors, and that the directors be and are hereby authorised to allot, issue and otherwise to dispose of all or any of such shares in order to give effect to and implement the acquisition referred to and defined in the circular to Keaton Energy shareholders dated 23 May 2011. A majority of the votes cast by all shareholders present or represented by proxy at the general meeting, will be required to approve this resolution. ORDINARY RESOLUTION NUMBER 2 Adoption of amendments to the Keaton Energy Long-Term Performance Incentive Scheme RESOLVED THAT the amendments to the Keaton Energy Long-Term Performance Incentive Scheme which have been tabled at this general meeting and initialled by the Chairman of the general meeting for purposes of identification, be and are hereby approved and adopted by Keaton Energy shareholders. The Keaton Energy Long-Term Performance Incentive Scheme will be available for inspection during normal business hours at the registered office of the Company from the date of the circular, being Monday, 23 May 2011, up to and including the date of the general meeting. In terms of the Listings Requirements, the approval by 75% of votes cast by shareholders present or represented by proxy at the general meeting, is required for this Ordinary Resolution Number 2 to become effective, excluding all votes attaching to all shares owned and controlled by persons who are existing participants in the Keaton Energy Long-Term Performance Incentive Scheme. ORDINARY RESOLUTION NUMBER 3 General authority to issue shares for cash RESOLVED THAT the directors of the Company be and are hereby authorised and empowered, by way of a general authority, to allot and issue shares for cash to such persons, on such terms and conditions as the directors may from time to time at their discretion deem fit, but subject to the provisions of the Act and the JSE Listings Requirements and the following limitations, namely that: (a) the equity securities which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be limited to such securities or rights that are convertible into a class already in issue; 15
(b) any such issue will be made only to public shareholders as defined in the JSE Listings Requirements and not related parties, unless the JSE otherwise agrees; (c) the number of shares issued for cash shall not in the aggregate in any one financial year exceed 5% (five per cent) of the Company s issued share capital of ordinary shares. The number of ordinary shares which may be issued shall be based on the number of ordinary shares in issue, added to those that may be issued in future (arising from the conversion of options/convertibles) at the date of such application, less any ordinary shares issued, or to be issued in future arising from options/convertible ordinary shares issued during the current financial year; plus any ordinary shares to be issued pursuant to a rights issue which has been announced, is irrevocable and is fully underwritten, or an acquisition which has had final terms announced; (d) this authority be valid until the Company s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date that this authority is given; (e) a paid press announcement giving full details, including the impact on net asset value and earnings per share, will be published at the time of any issue representing, on a cumulative basis within 1 (one) financial year, 5% (five per cent) or more of the number of shares in issue prior to the issue; and (f) in determining the price at which an issue of shares may be made in terms of this authority, the maximum discount permitted will be 10% (ten per cent) of the weighted average traded price on the JSE of those shares over the 30 (thirty) business days prior to the date that the price of the issue is determined or agreed to by the directors of the Company. Ordinary Resolution Number 3 is required, under the JSE Listings Requirements, to be passed by achieving a 75% majority of the votes cast in favour of such resolution by all members present or represented by proxy and entitled to vote at the general meeting. ORDINARY RESOLUTION NUMBER 4 Authority of directors to sign documentation RESOLVED THAT the directors of the Company be and are hereby authorised to do all such things and sign all documents including company forms and to take all such action as they consider necessary to give effect to and implement Ordinary Resolution Number 1, Ordinary Resolution Number 2 and Ordinary Resolution Number 3. Voting and proxies A Keaton Energy shareholder entitled to attend and vote at the general meeting is entitled to appoint one or more proxies to attend, speak and vote in his/her stead. A proxy need not be a shareholder of the Company. For the convenience of registered certificated Keaton Energy shareholders or Keaton Energy shareholders who have dematerialised their Keaton Energy shares with own-name registration, a form of proxy is attached hereto. Duly completed forms of proxy must be lodged with the transfer secretaries at the address below by no later than 09:00 on Friday, 17 June 2011 (or 48 hours before any adjourned general meeting which date, if necessary, will be notified in the press and on the JSE Limited Securities Exchange News Service). Keaton Energy shareholders who have dematerialised their Keaton Energy shares and have not selected own-name registration must advise their Central Securities Depository Participant ( CSDP ) or broker of their voting instructions should they be unable to attend the general meeting but wish to be represented thereat. Dematerialised Keaton Energy shareholders without own-name registration should contact their CSDP or broker with regard to the cut-off time for their voting instructions. If, however, such members wish to attend the general meeting in person, then they will need to request their CSDP or broker to provide them with the necessary Letter of Representation in terms of the custody agreement entered into between the dematerialised shareholder and their CSDP or broker. Hand deliveries to: Postal deliveries to: Computershare Investor Services (Proprietary) Limited Computershare Investor Services (Proprietary) Limited Ground Floor, 70 Marshall Street PO Box 61051 Johannesburg, 2001 Marshalltown, 2107 Forms of proxy are to be received by no later than 09:00 on Friday, 17 June 2011 (or 48 hours before any adjourned general meeting which date, if necessary, will be notified on SENS and in the press ). 16
By order of the Board P B M Miller Managing Director Bryanston Monday, 23 May 2011 Secretary and registered office Transfer secretaries Michelle Louise Taylor Computershare Investor Services (Proprietary) Limited Ground Floor, Eland House (Registration number 2004/003647/07) The Braes Ground Floor 3 Eaton Road 70 Marshall Street Bryanston, 2191 Johannesburg, 2001 (Postnet Suite 464, Private Bag X51, Bryanston, 2021) (PO Box 61051, Marshalltown, 2107) 17
18 PRINTED BY INCE (PTY) LTD REF. W2CF 12008
(Incorporated in the Republic of South Africa) (Registration number 2006/011090/06) Share code: KEH ISIN: ZAE000117420 ( Keaton Energy or the Company ) FORM OF PROXY (FOR USE BY HOLDERS OF CERTIFICATED SHARES AND DEMATERIALISED SHARES WITH OWN-NAME REGISTRATION ONLY) For use by the Company s certificated shareholders and dematerialised shareholders with own -name registration at the general meeting of shareholders of the Company to be held at Ground Floor, Eland House, The Braes, 3 Eaton Road, Bryanston on Tuesday, 21 June 2011 at 09:00 and at any adjournment thereof. Holders of dematerialised shares, other than with own-name registration, must inform their Central Securities Depository Participant ( CSDP ) or broker of their intention to attend the general meeting of shareholders and request their CSDP or broker to issue them with the necessary Letter of Representation to attend in person and vote or provide their CSDP or broker with their voting instructions should they not wish to attend the general meeting of Keaton Energy shareholders but wish to be represented thereat. I/We (full names in BLOCK LETTERS) of (address) being the holder(s) of shares in Keaton Energy, do hereby appoint (see note 2): 1. of or failing him/her, 2. of or failing him/her, 3. the Chairman of the general meeting, as my/our proxy to act for me/us and on my/our behalf at the general meeting which will be held for the purpose of considering and, if deemed fit, passing, with or without modification, the ordinary resolutions to be proposed thereat and at any adjournment thereof; and to vote for and/or against the ordinary resolutions and/or abstain from voting in respect of the Keaton Energy shares registered in my/our name(s), in accordance with the following instructions (see note 3): Ordinary Resolution Number 1: Specific authority to allot and issue 16 622 222 ordinary shares in order to give effect to and implement the acquisition Ordinary Resolution Number 2: Adoption of the amendments to the Keaton Energy Long-Term Performance Incentive Scheme Ordinary Resolution Number 3: General authority to issue shares for cash Ordinary Resolution Number 4: Authorising the directors to implement Ordinary Resolution Number 1, Ordinary Resolution Number 2 and Ordinary Resolution Number 3 * Note: On a poll a Keaton Energy shareholder is entitled to one vote for each Keaton Energy share held. Number of shares* For Against Abstain Signed at on 2011 Signature (s) Assisted by (where applicable) Each shareholder is entitled to appoint one or more proxies (who need not be a shareholder of the Company) to attend, speak and vote in place of that shareholder at the general meeting. Please read the notes on the reverse side hereof.