announcement out

20 October 2008
KEY CHANGES TO MANAGEMENT AGREEMENT TERMS
In August 2008, the Independent Directors of Babcock & Brown Power (ASX:BBP) asked Babcock & Brown (ASX:BNB) for a review of the Management Agreement to strengthen the alignment between securityholders and the Manager1.
Len Gill, BBP Independent Chairman said “The Independent Directors are pleased to announce that a number of key changes to the terms of the Management Agreement have been agreed with BNB that reinforce existing structures, improve governance and better align interests with BBP securityholders.”
Board
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The BBP Board currently comprises a majority of Independent Directors. Going forward, the Board will comprise an Independent Chairman (effective July 2008), a further two Independent Directors, a Managing Director (being the CEO of BBP) and a BNB Executive.
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The Manager Board to comprise 3 members being the CEO of BBP, the BNB Executive on the BBP Board and the COO of BNB Specialised Funds.
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Independent Directors have the right to attend the Manager Board meetings and receive all relevant papers.
With an Independent Chairman, the Board’s ability to control BBP’s strategy and investment decisions is enhanced.
1 The Manager of BBP is Babcock & Brown Power Management Pty Ltd, a subsidiary of Babcock & Brown.
The Manager of BBP and Staff
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BBP staff to be employed by the Manager, not BNB itself and to work exclusively on provision of services to BBP and, as currently required under the BNB governance principles for its managed funds, solely in the interests of BBP securityholders.
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Staff salaries will be set with reference to BBP industry peers and incentives in cash and rights are to be linked solely to the performance of BBP.
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Independent Directors’ right of approval for the appointment or dismissal of the CEO is to be extended to Key Management Personnel (KMP), namely all direct reports of the CEO, and will agree with the Manager the Key Performance Indicators and remuneration for KMP.
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The Management Agreement will continue to require that the Manager is specifically and legally obliged to act in the best interest of BBP and its securityholders.
These measures have been designed to ensure the Manager and its employees act and are incentivised to act in the best interests of BBP securityholders.
Fees
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As announced on 29 August 2008, BNB agreed to waive the base fee (1% Net Investment Value) in FY09.
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BBP and BNB have agreed to discuss the base fee in relation to FY10 with regards to any developments arising from the strategic review.
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In addition to the current incentive fee (20% of excess of Stapled Security Return over Benchmark S&P/ASX200AI Return) which has a 3 year reset, an override provision has been agreed whereby no incentive fee will be payable until a sustained security price of $1.50 is reached or until 1 July 2013, whichever is the earlier.
The resetting of the fees is designed to better align the interests of BNB and BBP.
Other
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The BBP Board can make and implement decisions and initiate other actions which have not been the subject of a Manager recommendation.
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The Exclusive Financial Advisory Agreement with BNB to be amended such that the Board has the right to obtain independent third party advice on related party transactions.
These changes are designed to ensure there is greater independence with respect to advice that can be obtained and decisions that can be made.
ENDS