BABCOCK & BROWN

6. risk factors
6.1.7 Future fundraising by the Babcock & Brown
Group
The Babcock & Brown Group may enter into any transaction
without restriction including acquiring and disposing of assets,
entering into any borrowing, guarantee or indemnity and
creating and issuing further BBSN or other equity or debt
securities including securities or other indebtedness ranking
ahead of the claims of Holders. Any such transactions may
impact over time, either positively or negatively, on a Holder’s
credit position in the event of a Winding Up.
An investment in BBSN carries no right to participate in
any future issue of securities (whether equity, hybrid, debt or
otherwise) by Babcock & Brown. No prediction can be made
as to the effect, if any, such future issues of financial securities
by an entity in the Babcock & Brown Group may have on the
market price or liquidity of BBSN.
Babcock & Brown is negotiating with UBS for the provision
by UBS of the Standby Acquisition Facility. Funding under
this facility will be linked to the acquisition of certain specified
assets. A summary of the proposed facility is contained in
Section 8.11. In addition, BBIPL is currently renegotiating its
Existing Corporate Facility which may result in an increase
in funds which can be drawn down under that facility.
If the negotiation of the Standby Acquisition Facility is
concluded and that facility drawn down, then it will rank
ahead of BBSN for payment and in a liquidation of Babcock
& Brown. Payments under the Existing Corporate Facility
rank ahead of payments under the Guarantee both in payment
and in a liquidation of BBIPL.
6.1.8 Ability to reset terms
On any Reset Date, Babcock & Brown may change certain terms
including the next Reset Date, Exchange Discount, Market Rate,
Margin and Interest Payment Dates. There is a risk that the nature
of change to the terms may be disadvantageous to Holders
compared to the terms current at the time the Reset Notice
is given.
In the event that Holders are not satisfied with any changes
proposed to be made to certain terms after the Reset Date,
Holders may provide an Exit Notice to Babcock & Brown,
or sell their BBSN on ASX.
6.1.9 Taxation considerations
A summary of the potential taxation implications for Holders
is set out in the Tax Letter in Section 7. This letter is in general
terms and is not intended to provide specific advice in relation
to the circumstances of any particular investor. Accordingly,
you should seek independent advice in relation to your own
individual taxation circumstances.
You should be aware that future changes in Australian taxation
law including changes in interpretation or application of the law
by the courts or taxation authorities in Australia, may affect the
taxation treatment of an investment in BBSN, or the holding
and disposal of BBSN or shares. An adverse change in law may
provide grounds for Babcock & Brown to Repay BBSN.
6.2 Risks relating to the Babcock & Brown
Group
6.2.1 Competition
The financial services industry is intensely competitive and
expected to remain so. The Babcock & Brown Group competes
on the basis of a number of factors, including the quality of
advice and service, innovation, reputation and price. Over time,
the Babcock & Brown Group relies on the creation of new
products and business lines within that environment. Many
competitors are better capitalised, have a greater range of
products and services, greater financial and marketing resources
and larger customer bases than the Babcock & Brown Group.
6.2.2 Loss of key personnel
The Babcock & Brown Group’s performance is largely
dependent on the talents and efforts of highly skilled individuals.
The Group’s continued ability to compete effectively depends
on the ability to retain and motivate existing employees as well
as attracting new employees.
The employment contracts and remuneration arrangements
of key executives include mechanisms to encourage long term,
continuous employment with Babcock & Brown. These contracts
are designed to protect the Group against loss of such personnel
by the inclusion of notice periods and non-compete clauses
with penalties for breach.
6.2.3 Large holdings by existing Shareholders and
Employee Stakeholders
The Employees and HVB have an economic interest of
approximately 54.7% and 5.95%, respectively, in the Babcock
& Brown Group. Employees own approximately 36.4% and
HVB owns approximately 8.4%, respectively, of Babcock &
Brown. Four of the Employee Stakeholders are on the Board
and will have significant influence over the direction of the
52 BABCOCK & BROWN SUBORDINATED NOTES