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SECTION 8 ADDITIONAL INFORMATION occurs then either that party’s current interest in the Group may be redeemed for cash based on the pre-IPO net tangible assets or the Offer may be withdrawn. Babcock & Brown believe that it is unlikely that these parties will withdraw. 8.3.3 Employee loan arrangements BBH has provided Babcock & Brown Executive Stakeholders with loan financing for the acquisition of their interests in BBH or the Phantom Plan.These loans are generally repaid by salary and bonus sacrifice arrangements with the relevant Babcock & Brown employee or through the application of distributions from BBH or the Phantom Plan. The loans are secured against the employee’s interests in BBH Shares or the Phantom Plan, as the case may be. As part of the termination of the Phantom Plan and the transfer of Babcock & Brown employees’ interests in BBH to Babcock & Brown and BBIPL, all existing financing arrangements with BBH are to be repaid by Babcock & Brown employees. Existing salary and bonus sacrifice arrangements are also to be terminated. Babcock & Brown is arranging a replacement facility with a third party financier to assist Babcock & Brown employees to refinance their existing financing arrangements with BBH. Babcock & Brown employees will be obliged to repay their existing financing arrangements with BBH, but only once the alternative facility is in place. This alternative facility may not be in place until after the IPO. 8.3.4 Post restructuring Babcock & Brown Group structure The Babcock & Brown Group structure post the restructuring is outlined in Section 2.4. Shareholdings and Economic Interests in Babcock & Brown are outlined at Section 2.5. 8.3.5 Documentation All documents required to effect the restructuring of the Babcock & Brown Group required for the purposes of this Prospectus and the listing of Babcock & Brown on ASX have been executed by the relevant parties and placed into escrow.These restructuring documents will only be released from escrow, and become effective, following the satisfaction of certain conditions.These conditions include achieving the minimum subscription under this Prospectus and receiving the written consents of both the Executive Committee and HVB to the release of the restructuring documents. Additionally, certain parties have the right to withdraw their documents from escrow during a brief period following the date of this Prospectus. If this occurs then either that party’s current interest in the Group may be redeemed for cash based on the pre-IPO net tangible assets or the Offer may be withdrawn. Babcock & Brown believe that it is unlikely that these parties will withdraw. 8.4 BBIPL RIGHTS AND CONSTITUTION SUMMARY US Executive Stakeholders will hold their interests in Babcock & Brown through Babcock & Brown International Pty Limited (BBIPL), the holding company for Babcock & Brown’s operations.The US Executive Stakeholders will hold their interest at the BBIPL level as direct ownership at the listed company level may have material adverse tax consequences for US Executive Stakeholders. The following summary sets out details of the special provisions in the Constitution of BBIPL that regulate the relationship between: • Babcock & Brown, which holds a majority shareholding in BBIPL in the form of “A Class” Shares. Babcock & Brown is the sole holder of A Class Shares • The various US Executive Stakeholders of Babcock & Brown who will hold redeemable preference shares in BBIPL (termed “B Class” shares) The various special provisions in BBIPL’s Constitution are designed to provide an appropriate balance between the rights of Babcock & Brown and those of the B Class shareholders. An overriding principle in relation to that balance, however, is that B Class shareholders should not interfere with the ability of Babcock & Brown’s shareholders to determine issues concerning control of Babcock & Brown and of the Babcock & Brown Group as a whole. 152
BABCOCK & BROWN PROSPECTUS Specific relevant provisions of the Constitution are as follows. 8.4.1 Classes of shares The A Class Shares held by Babcock & Brown are ordinary Shares.The B Class shares held by employees are redeemable preference shares.The preference given to B Class shares is a token one cent per share priority on a winding up, and those shares otherwise have the right to participate equally with A Class Shares in a distribution of surplus assets on a winding up. B Class shares do not have a preferential right to dividends. 8.4.2 B Class Share redemption/conversion provisions 1. Redemption/conversion at the request of a shareholder The ability of B Class shareholders to deal with their shares is initially limited by a 3 1 ⁄2 year, progressively reducing, escrow restriction identical to that applying to shares in Babcock & Brown which are held by Executive Stakeholders. Should any B Class shares be converted into Babcock & Brown Shares, a similar restriction will continue to apply for the balance of the escrow period. B Class shareholders will be able to request that their shares are redeemed or converted.When a shareholder makes this request, one of three things will happen: • The shares will be redeemed by BBIPL for cash • The shares will be purchased by Babcock & Brown for cash • Babcock & Brown will purchase the B Class shares in return for an issue of new fully paid ordinary Shares in Babcock & Brown (in which case those B Class shares automatically convert into A Class Shares) A decision as to how a redemption/conversion request is dealt with under one of the three options above will be made by Babcock & Brown or in its absence BBIPL. It is anticipated that Babcock & Brown will seek to purchase the B Class shares in return for an issue of fully paid ordinary Shares in Babcock & Brown. In the event of a scheme of arrangement, takeover or similar control transaction being announced, B Class shareholders may require that their shares are converted into Babcock & Brown Shares rather than being redeemed or purchased for cash. 2. Redemption/conversion price The conversion ratio will be maintained at one for one, subject only to an adjustment for Babcock & Brown having material assets or liabilities other than its shares in BBIPL. Likewise, the amount of the cash redemption or purchase price payable to a B Class shareholder will generally be the market value of a Share in Babcock & Brown. In the case of a redemption or cash purchase, the market value is determined as the highest sale price on ASX of Babcock & Brown’s Shares on the fourth business day after the redemption notice is received. After the later to occur of the date 11 years after Babcock & Brown’s listing on ASX and the date on which at least 60% of the B Class shares have been redeemed or purchased, the redemption and conversion price begins to decline at the rate of 5% per annum. 3. Redemption/conversion instigated by BBIPL There are certain circumstances in which BBIPL can compulsorily redeem or convert (at its option) B Class shareholdings.The first such circumstance is the later of the date seven years after the IPO and the date on which 80% of B Class shares have been redeemed or purchased. At any time after that date, BBIPL can require any BClass shareholder to either have its shares redeemed for cash, or to sell its shares to Babcock & Brown for either cash or an issue of Shares in Babcock & Brown.The cash redemption or purchase price is the same as that set out above, with the exception that the diminishing price after 11 years does not apply to mandatory redemptions. Further circumstances in which BBIPL can compulsorily redeem or buy out B Class shares are following a successful scheme of arrangement, selective capital reduction, or takeover bid for Babcock & Brown which results in a third party acquiring 100% of the issued Shares in Babcock & Brown. In that case, regardless of whether or not the seven-year/80% threshold referred to above has been met, BBIPL can require any remaining B Class shareholders to either have their shares redeemed or sell their shares to Babcock & Brown in exchange for either cash or Shares in Babcock & Brown (at BBIPL’s option). 153
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