Lead Manager

BABCOCK & BROWN PROSPECTUS
33. RELATED PARTY TRANSACTIONS
Members of Babcock & Brown Limited hold investments and management interests in a large number of entities
and investment vehicles (affiliates).
Such investments may comprise equity investments, quasi equity, debt, or a combination thereof. Babcock &
Brown’s interest may be either as the majority holder, as a minority holder, or shared as an equal participant with
one or more other parties. In addition, members of Babcock & Brown may borrow from or lend to such
affiliates, enter management or profit share arrangements with them, generate fees from provision of services to
them or incur expenses to them. Infrequently, Babcock & Brown may guarantee or underwrite obligations of the
affiliate or indemnify third parties in respect of those obligations.
With respect to many of these affiliates, executive officers and other employees of Babcock & Brown (related
parties) also have direct or indirect minority or majority investment interests and they may hold director or
officer positions in the affiliate.
In the opinion of management, all transactions with related parties, whether between Babcock & Brown and the
related party or an affiliate and related party, are conducted on terms, conditions and at prices which fully reflect
the terms, conditions and prices which could be achieved if such transactions were conducted between third
parties, and all transactions in which related parties have participated could have been concluded without the
related parties’ participation on substantially the same terms with third parties.
34. CONTINGENT LIABILITIES
In certain financings that it has arranged and assets that it has sold, Babcock & Brown has indemnified parties to
the financings and asset purchase for expenses that the parties could incur should certain events occur. Babcock &
Brown believes that the probability of them incurring a material loss as a result of the indemnifications is remote
and that any potential liability is not material.
Babcock & Brown has completed financing transactions that may result in future fee or income payments to
Babcock & Brown in addition to those received at the financing closing. Because the future payments are
contingent with a risk that no additional payments will be received by Babcock & Brown, such payments are not
recorded in Babcock & Brown’s financial statements until they are received. For most of these items, Babcock &
Brown has committed to make additional payments to current and former employees and owners if and when
Babcock & Brown receives additional payments. Liabilities to make such payments, including Babcock & Brown’s
liability to BBH under the employee secondment agreement with BBH, are recorded in Babcock & Brown’s
financial statements at the same time Babcock & Brown records the related receipts.
The US Internal Revenue Service (IRS) is currently conducing an examination in connection with Babcock &
Brown’s advisory business during 1993 to 1999 to determine whether Babcock & Brown should have made
certain filings and registrations required under US tax law in relation to corporate tax shelters that may have been
used by Babcock & Brown’s clients in that period.The IRS has not commenced proceedings, nor has it issued an
assessment for liability under the relevant provisions. After consultation with its legal advisers, Babcock & Brown
has made such provisions, as it considers appropriate in its financial statements in respect of this matter.
Because of the nature of its business activities, Babcock & Brown is occasionally subjected to legal actions,
contractual disputes, employment claims, and assessments of tax deficiencies.The contingencies typically arise in
the normal course of Babcock & Brown’s business and as a result of regular, periodic reviews by taxing
authorities. In the opinion of management, after consultations with legal counsel, the ultimate resolution of these
matters will not have material adverse effect on the consolidated financial statements.
A related party real estate developer has an obligation to pay $2.8 million to an unrelated third party upon
reaching certain development hurdles. An Australian subsidiary of Babcock & Brown has guaranteed this
payment.The subsidiary entity has no reason to believe the related party will fail to make this payment, which is
expected to fall due on or before March 2005.
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