Lead Manager

BABCOCK & BROWN PROSPECTUS
As these liabilities represent a first call on Net Revenue, in circumstances of low profitability, these payments
could result in a need to increase the bonus pool to a level greater than it would otherwise be as described in
4.7.2. In the Forecasts, these liabilities are assumed to be met without increasing the bonus pool, and, in any
event, results from the date of the Restructure to 31 December 2004 are covered by the minimum allocation to
Shareholders referred to in Section 5.3.2.4.
4.7.4 Bonus Pool transitional arrangements for 2004 and 2005
Transitional arrangements will be applicable in the determination of the bonus pool for 2004 and 2005.
In 2004 the bonus pool will be adjusted to ensure that the consolidated net profit after tax of the Group for the
period from 1 October 2004 to 31 December 2004 is as set out in Section 5.3.2.4.
In calculating the bonus pool for 2005, the total Net Revenue for that year will exclude interest for one year on
capital not invested by the end of 2005 calculated at the rate achieved by Babcock & Brown on the Group’s cash
available for investment at 31 December 2005.This reduction will be made to reflect the fact that the bonus pool
should not include interest earned on capital not invested by the end of 2005.
4.7.5 Bonus deferral
To further align key employees with the long term performance of the Group, Executives who receive bonuses
above a threshold will have 25% of the excess above this level paid in the form of Bonus Deferral Rights (see
Section 8.10.4) which will entitle the holder to a Share in Babcock & Brown (or cash in lieu thereof at the time
of vesting at the discretion of the Board).The number of rights granted will be determined by dividing the
amount of the deferred portion of the bonus by the market value of Babcock & Brown Shares at the time of the
bonus determination.The exercise price of these rights will be zero and the Rights will fully vest after four years
of continued employment.
This policy will commence in relation to the 2005 bonus pool and will not apply to the 2004 bonus pool.
4.7.6 Equity incentive plan
There will be two types of award structures employed by Babcock & Brown:
• Executive Share Options:The exercise price on each option will be based on the market value of Shares at
the time of grant
• Performance Rights:These will entitle the employee to one Share in Babcock & Brown upon vesting
Vesting of Executive Share Options and Performance Rights will be subject to performance hurdles, notably the
Total Shareholder Return ranking equalling at least the 51st percentile of all ASX 200 companies over a
three-year period (whereupon 50% of awards will vest) with 100% vesting for a performance ranking at or above
the 75th percentile, and proportional vesting on a straight line basis for outcomes in between these thresholds.
Performance on the unvested component of any award will be retested after four years from the date of grant of
the Executive Share Options and Performance Rights.
Except as part of the package for new employees, no awards will be made in 2004 or 2005.The first awards of
Executive Share Options and Performance Rights will be made in the first quarter of 2006. For further
information see Section 8.10.
4.7.7 Employee Trusts
In order to provide an equity interest to a number of Executives who did not own or had little pre-IPO
Economic Interest in Babcock & Brown, Babcock & Brown will grant rights to specified Executives to Shares in
Babcock & Brown.The Group established two Employee Trusts (one for Australian-based Executives and the
other for all other non-Australian-based Executives) which will hold Shares and Options in Babcock & Brown,
to be used to satisfy the rights granted to Executives.
The Employee Trusts will hold 12.5 million Shares and 23.5 million Options over Shares in Babcock & Brown.
The Shares will be fully paid and the Options will be fully vested.The exercise price of the Options will be the
Offer Price. BBIPL will contribute the purchase price of the Shares and the fair market value of the Options to
the Employee Trusts.That amount, which will be subject to revision at the IPO date, will be approximately
$87.5 million and the Employee Trusts will pay that amount to Babcock & Brown as the subscription price for
the Shares and the fair market value of the Options.
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