BABCOCK & BROWN

8.6.1 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.
8.6.2 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, subject to certain exceptions, by
a progressively reducing escrow restriction (ending on the
release, by Babcock & Brown, of its periodic financial results
for the year ending 31 December 2007) equivalent to that
applying to Ordinary Shares which are held by Employee
Stakeholders. Should any B Class Shares be converted into
Ordinary Shares, a similar restriction will continue to apply
for the balance of that period of time.
B Class Shareholders are 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 by purchased by Babcock & Brown for cash; or
• Babcock & Brown will purchase the B Class Shares in return
for an issue of new Ordinary Shares (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. In
the event of a scheme of arrangement, takeover or similar
control transaction being announced, B Class Shareholders
may, in certain circumstances, require that their shares are
converted into Ordinary 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 Ordinary 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 B Class Shareholder to
either have its shares redeemed for cash, or to sell its shares
to Babcock & Brown for either cash or an issue of Ordinary
Shares. 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 of Babcock & Brown which results in a third party (and
its associates) acquiring 100% of the issued Ordinary Shares.
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 Ordinary Shares so long as the Ordinary
Shares remain listed on ASX (at BBIPL’s option).
8.6.3 Issue of further BBIPL shares
In order to maintain the one for one conversion ratio between
B Class Shares and Babcock & Brown’s shares, it will be
necessary to maintain the number of issued Ordinary Shares
and options in Babcock & Brown at exactly the same number
as the A Class Shares which Babcock & Brown holds in
BBIPL. In this way, both an Ordinary Share and a B Class
Share will have the same per share dividend entitlement, and
this should ensure that (all else being equal) both shares have
a comparable value so as to make the one for one conversion
ratio fair to both B Class Shareholders and Shareholders.
BABCOCK & BROWN SUBORDINATED NOTES 71