Lead Manager

BABCOCK & BROWN PROSPECTUS
5.3.2.4 Allocation of 2004 earnings between pre- and post-IPO shareholders
In view of the change in ownership of the Group which will be brought about by the IPO, it will be necessary
to apportion the earnings for 2004 between the pre-IPO and the post-IPO periods. Consistent with AGAAP, the
post-IPO period only will be reflected in the statutory financial statements of the Group at 31 December 2004.
Whilst the change in ownership may not in fact occur until early October 2004, the Board has decided to
recognise the change as at 30 September 2004 to coincide with the quarter end closest to the expected IPO date.
To provide certainty for post-IPO Shareholders, the Group will use its best endeavours to ensure a minimum
after tax earnings of the Group for the period from 1 October 2004 to 31 December 2004.This minimum has
been determined as $14,485,735 which represents 25% of the AGAAP pro-forma consolidated forecast profit
before tax and goodwill amortisation for the year ending 31 December 2004 less tax calculated at the forecast
effective tax rate for 2005 (29%) and less the forecast AGAAP consolidated goodwill amortisation for that period.
To ensure the post-IPO Shareholders receive at least that minimum, the profit after tax of the Group for the
period from 1 October 2004 to 31 December 2004 will be calculated as:
(a)
the greater of:
(i) $33,178,500; and
(ii) 25% of the pro-forma consolidated net profit before tax and goodwill amortisation of the restructured
Group for the year ending 31 December 2004 based on the actual results of operations and prepared on
a basis consistent with the 2004 Forecast; less
(b)
tax on the amount determined under (a) calculated at the lower of:
(i) 29%; and
(ii) the tax expense of the restructured Group for the period from 1 October 2004 to 31 December 2004 as
a percentage of the Group’s net profit before tax for the same period; less
(c)
the AGAAP consolidated goodwill amortisation expense of the restructured Group for the period from
1 October 2004 to 31 December 2004.
The total profit before tax and goodwill amortisation earned by the restructured Group for the year ending
31 December 2004 will therefore be dealt with as follows:
• By varying the post-IPO bonus pool as required by condition (a) above (and condition (b) if required), profit
before tax and goodwill earned post-IPO will be adjusted in accordance with the formula outlined above
• The balance will be attributable to the pre-IPO owners.This balance less any actual tax payable by the
Group in respect of both the pre-IPO and post-IPO periods and goodwill amortisation, if any, applicable in
the pre-IPO period will be paid to pre-IPO owners.
$60 million of the amount payable to pre-IPO owners will be paid immediately following the IPO.The
remainder will be paid in February 2005, after the announcement of the Group’s audited result for the period to
31 December 2004.
The effect of the formula outlined above is that the total compensation payment for the period from 1 October
2004 to 31 December 2004 may vary (increase or decrease) from the indicative 50% of total Net Revenue, set
out in the Babcock & Brown remuneration policy. In particular, if proportionately more pre-compensation profits
are earned in the period from 1 October 2004 to 31 December 2004 than in the pre-IPO period, the total
compensation expense for the period from 1 October 2004 to 31 December 2004 is likely to exceed 50% of Net
Revenue for that period.
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