PROSPECTUS AND PRODUCT DISCLOSURE STATEMENT

Transcription

1 PROSPECTUS AND PRODUCT DISCLOSURE STATEMENT Issued by Babcock & Brown Wind Partners Pty Ltd (ABN )* * Converting to a public company effective 30 September 2005 and to be known as Babcock & Brown Wind Partners Limited Babcock & Brown Wind Partners (Bermuda) Limited (ARBN ) and Babcock & Brown Wind Partners Services Limited (ABN ) (AFSL ) as Responsible Entity for Babcock & Brown Wind Partners Trust (ARSN ) Joint Bookrunners and Underwriters J.P. Morgan Australia Limited ABN AFSL UBS AG, Australia Branch ABN AFSL Financial Adviser Babcock & Brown Australia Pty Ltd ABN Underwriter Babcock & Brown Asset Holdings Pty Ltd ABN AFSL

2 IMPORTANT INFORMATION ProsPectUs And ProdUct disclosure document This prospectus and product disclosure statement (together referred to as the ( offer document ) is dated 26 September 2005 and was lodged with the Australian Securities and Investments Commission ( Asic ) on that date. Application will be made, within 7 days from the date of this Offer Document, for Babcock & Brown Wind Partners Pty Limited (which company will convert to a public company as of 30 September 2005 and thereafter be known as Babcock & Brown Wind Partners Limited) ABN ( BBWPl ), Babcock & Brown Wind Partners (Bermuda) Limited ARBN ( BBWPB ) and Babcock & Brown Wind Partners Trust ARSN ( BBWPt ) to be admitted to the Official List of Australian Stock Exchange Limited ( AsX ) and for quotation of the Stapled Securities of Babcock & Brown Wind Partners ( BBWP ) on ASX. Each Stapled Security of BBWP comprises one ordinary share in BBWPL ( BBWPl share ), one ordinary share in BBWPB ( BBWPB share ) and one unit in BBWPT ( Unit ), which are stapled together and cannot be traded or dealt with separately ( stapled securities ). Neither ASX nor ASIC take any responsibility for the contents of this Offer Document. The fact that ASX may admit BBWP to the Official List and quote the Stapled Securities is not to be taken in any way as an indication of the merits of BBWP. No Stapled Securities will be allotted, issued or sold on the basis of this Offer Document more than 13 months after the date of this Offer Document. this offer document is not investment advice. You should seek your own financial advice. Before deciding to invest, you should read this Offer Document in its entirety. In particular, in considering the prospects of BBWP, you should consider the assumptions underlying the forecast financial information and the risk factors that could affect the financial performance of BBWP. The information in this Offer Document is general only and does not take into account your individual objectives, financial situation and needs. Consequently, you should carefully consider whether the Offer is a suitable investment for you in light of your individual objectives, financial situation and needs (including taxation issues). To obtain advice or more information about the Offer you should seek professional advice from your accountant, stockbroker, lawyer, Australian financial services licensee, authorised representative or other professional adviser before deciding whether to invest. selling restrictions The Stapled Securities have not been and will not be registered under the United States Securities Act 1933, as amended ( Us securities Act ) or the laws of any state of the United States, and may not be offered or sold within the United States or to or for the account or benefit of a US Person (as defined in Regulation S of the US Securities Act) except under an exemption from the registration requirements of the US Securities Act or applicable US state securities laws or in a transaction not subject to such registration requirements. The Bermuda Monetary Authority ( BmA ) has classified BBWPB as a non-resident for exchange control purposes. Accordingly, the BMA does not restrict BBWPB s ability to engage in transactions in currencies other than Bermuda dollars, to transfer funds in and out of Bermuda or to pay dividends to non-bermuda residents who are shareholders, other than in Bermuda dollars. BBWPB has received consent under the Exchange Control Act 1972 of Bermuda from the BMA for the issue and transfer of ordinary shares of BBWPB comprising part of the Stapled Securities to and between non-residents of Bermuda for exchange control purposes, provided that such Stapled Securities remain listed on ASX. A copy of this Offer Document has been delivered to the Registrar of Companies of Bermuda as required by section 28 of the Companies Act, 1981 of Bermuda ( Bermuda companies Act ). In granting such consent and accepting this Offer Document for filing neither the BMA nor the Registrar of Companies accepts responsibility for the financial soundness of any proposal or the correctness of any of the statements made or opinions expressed in this Offer Document with regard to them. The Offer to which this Offer Document relates is available to persons receiving the Offer Document (electronically or otherwise) in Australia. This Offer Document does not constitute an offer or invitation in any place where, or to any person to whom, it would not be lawful to make such an offer or invitation. The distribution of this Offer Document in jurisdictions outside the Commonwealth of Australia may be restricted by law and any person who comes into possession of it who are not in Australia should seek advice on it and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. definitions And PhotogrAPhs Defined terms and abbreviations (including common industry terms) used in this Offer Document are explained in the Glossary (see Section 14). All financial amounts are expressed in Australian dollars unless otherwise stated. The assets depicted in photographs and diagrams in this Offer Document are not assets of BBWP unless otherwise stated, nor are they products or services provided by BBWP. Diagrams in this Offer Document are illustrative only and are not drawn to scale. electronic offer document This Offer Document is available in electronic form and can be found on the BBWP website at from the beginning of the exposure period (referred to below). The Offer constituted by this Offer Document in electronic form is available only to persons (not including US Persons) receiving this Offer Document in electronic form within Australia during the Offer Period. Eligible persons having received a copy of this Offer Document in its electronic form may, during the Offer Period, obtain a paper copy of the Offer Document (free of charge) by telephoning the Babcock & Brown Wind Partners Stapled Security Offer Information Line on Applications for Stapled Securities under this Offer Document may only be made on the Application Form accompanying this Offer Document or in its paper copy form as downloaded together with the entire Offer Document from the BBWP website at during the Offer Period. Application Forms will not be accepted electronically. The Corporations Act prohibits any person from passing on to any other person the Application Form unless it is attached to a hard copy of this Offer Document or the complete and unaltered electronic version of this Offer Document. Persons who receive the electronic Offer Document should ensure that they download and read the entire Offer Document.

3 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT ExposurE period The Corporations Act prohibits BBWP from processing Applications in the 7 day period after the date of lodgment of the Offer Document. This exposure period may be extended by ASIC by a further 7 days. No offer of stapled securities is being made during the exposure period. Applications will only be processed after the expiry of the exposure period. No preference will be conferred on Applications received in the exposure period. up-to-date information Information relating to the Offer may change from time to time. Where this information is not of a kind that is required to be included in a supplementary prospectus and/or product disclosure document, this information may be updated and made available on the BBWP website at or, by way of paper copy free of charge, by contacting the Babcock & Brown Wind Partners Stapled Security Offer Information Line on Where updated information about the Offer requires the issue of a supplementary prospectus and/or supplementary product disclosure document in accordance with the Corporations Act, a supplementary offer document will be issued. financial amounts All financial amounts contained in the Offer Document are expressed in Australian dollars unless otherwise stated. related parties Babcock & Brown Wind Partners Services Limited (ABN ) (AFSL ) ( BBWps ) is the responsible entity of BBWPT. BBWPS is a subsidiary of Babcock & Brown Limited (ABN ) ( Babcock & Brown ). Babcock & Brown Infrastructure Management Pty Ltd ( BBim ) (ACN ) is the Manager of each of BBWPL, BBWPB and BBWPS pursuant to respective management agreements. BBIM is a subsidiary of Babcock & Brown. Neither BBWPS nor any member of the Babcock & Brown Group (including Babcock & Brown, BBWPS and BBIM) guarantee the performance of BBWP or its Stapled Securities or the payment of a particular rate of return on the Stapled Securities. BBWPS, as responsible entity of BBWPT, and BBIM, as the Manager of each of BBWPS, BBWPL and BBWPB, are entitled to fees for so acting (see Section 8). Babcock & Brown and its related corporations, together with their officers and directors, and officers and directors of BBWP may hold Stapled Securities in BBWP from time to time. No cooling off Applicants have no cooling off rights in relation to Stapled Securities for which they apply. privacy If you apply for Stapled Securities, you will be asked to provide personal information to BBWP, directly and/or via the Registry. BBWP and the Registry collect, hold and use that personal information to assess and process your Application, provide facilities and services to you as an investor and undertake appropriate administration. Access to the information may also be provided to BBWP s agents, contractors and third party service providers to whom BBWP outsources services such as mailing functions, registry and accounting on the condition that they only use and disclose that information for BBWP s benefit and observe their obligations under the Privacy Act. If you do not provide BBWP with the information requested, BBWP or the Registry may not be able to process your Application or administer your holding of Stapled Securities. Once you become a holder of Stapled Securities, the Corporations Act requires information about you (including your name, address and details of the Stapled Securities you hold) to be included in BBWP s public register. This information must continue to be included in BBWP s public register if you cease to hold Stapled Securities. Under the Privacy Act, you may request access to your personal information held by or on behalf of BBWP by contacting the Registry as set out in the Corporate Directory of this Offer Document. In most cases you can gain access to the personal information that BBWP or the Registry hold about you. BBWP aims to ensure that the personal information it retains about you is accurate, complete and up-to-date. To assist us with this, please contact BBWP or the Registry if any of the details you have provided change. BBWP s privacy policy will be available at 1

4 contents key Offer Information 3 Investment Highlights 4 01 key Questions Investment Overview Details of the Offer Global Wind Industry Overview of BBWP Overview of the BBWP Portfolio BBWP Boards and Management Fees and expenses Financial Information Investment Risks experts Reports Material Contracts Additional Information Glossary 171 Appendix Appendix Appendix Application Form 225 Corporate Directory Inside Back Cover 2

5 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT key offer information important dates event Date Date of Offer Document Monday 26 September 2005 Last day of exposure period 1 Monday 3 October 2005 Offer opens Tuesday 4 October 2005 Offer closes Friday 21 October 2005 Allotment Date for Stapled Securities Thursday 27 October 2005 Commencement of trading of Stapled Securities (deferred settlement basis) Friday 28 October 2005 Despatch of holder statements for Stapled Securities and refunds if required Tuesday 1 November 2005 Stapled Securities commence normal trading on ASX 2 Thursday 3 November ASIC may extend the exposure period by up to seven days. No offer of Stapled Securities is being made during the exposure period. 2 Tuesday 1 November 2005 is a non-settlement date. Wednesday 2 November 2005 is the last day of deferred settlement trading. These dates are indicative only and may change. BBWP reserves the right to vary any of the above dates and times of the Offer without prior notice or to close the Offer early or withdraw the Offer at any time prior to the Allotment of Stapled Securities. offer summary Offer Price per Stapled Security $1.40 key investment details of the Offer 1 Millions Number of Stapled Securities available under the Offer Total number of Stapled Securities on issue following Allotment Total proceeds of Offer $361 $396 Market Capitalisation on listing with ASX (based on the Offer Price) $657 $692 Forecast period 2 FY 2006 FY 2007 Forecast Distribution per Stapled Security (cents) Forecast Distribution yield (based on the Offer Price; 100% tax deferred) Forecast ev / ebitda multiple (times) Forecast interest cover (times) BBWP has set the number of new Stapled Securities under the Offer at 257,837,384 Stapled Securities and can accept Applications for up to 25 million Stapled Securities in oversubscriptions to raise an additional $35 million. The bottom end of the range assumes no oversubscriptions. The top end of the range assumes that the maximum amount of oversubscriptions is allocated. 2 Assumes no oversubscriptions. See Section 9.8 for the assumptions on which these forecasts are based. 3 Calculated as if the Stapled Securities are acquired on 1 July The Foundation Offer is underwritten by BBAH and the Institutional Offer and the Broker Firm Offer are underwritten by the Joint Bookrunners. Oversubsciptions are not underwritten. Babcock & Brown intends to subscribe for additional Stapled Securities pursuant to the Offer to give it an aggregate holding at the time of listing of 15% of the Stapled Securities on issue. In addition to these Stapled Securities, Babcock & Brown (through its subsidiary BBAH) may also be obliged to take up Stapled Securities pursuant to BBAH s underwriting obligation under the Underwriting Agreement (see Section ). All financial forecasts have been prepared by Babcock & Brown Wind Partners. It is not certain that the forecast Distributions will be achieved. See Section 9 for further information about the assumptions upon which the Directors Forecasts are based and sensitivities to changes in key assumptions. See Section 10 for details of the risks associated with an investment in Stapled Securities. ENquiriEs Potential investors are advised to read this Offer Document in its entirety. Before deciding to invest, you should seek professional advice from a stockbroker, accountant or financial adviser about your individual objectives, financial situation and needs as those matters have not been considered by Babcock & Brown Wind Partners in preparing the Offer Document. If you have any questions about the Offer or how to complete the Application Form, you should call the BBWP Stapled Security Offer Information Line on or alternatively contact your stockbroker, accountant or financial adviser. Information can also be found on the Babcock & Brown Wind Partners website: 3

6 investment highlights by the end of 2004 the capacity of wind turbines installed globally had reached over 47,000 mw global installed cumulative wind energy (mw) 120, ,000 cagr of 23% p.a. 80,000 60,000 (installed mw) 40,000 20,000 source: btm consult 2004 cagr is the compound annual growth rate 2000a 2001a 2002a 2003a 2004a 2005f 2006f 2007f 2008f 2009f wind is a significant source 4 legislated renewable energy targets and incentives are driving growth in wind energy development european renewable energy targets by target 2010 source: eu directive 2001/77/ec denmark france germany greece italy spain uk percent of electricity consumption(%)

7 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT of renewable energy 5

8 INVeSTMeNT HIGHLIGHTS babcock & brown wind partners is a unique fund focused solely on the growing global united states of america Installed Capacity (MW) BBWP interest 1 40% min Annual generation (GWh) 1204 Operation start date BBWP holds Class B member interests spain Installed Capacity (MW) BBWP interest 100% Annual generation (GWh) 363 Operation start date germany Installed Capacity (MW) 19.5 BBWP interest 99% Annual generation (GWh) 37 Operation start date Oct 05 Initial Portfolio Europe 48% North America 11% Australia 41% North American Portfolio Caprock 34% Sweetwater 2 27% Blue Canyon 20% Sweetwater 1 10% Combine Hills 9% 6 the pie charts on this page and the next page are based on forecast 2007 ebitda (before corporateoverheads and fees). see section 9.8 for the assumptions on which these forecasts are based. for the us assets the figures are bbwp s share of cash distributions from these investments rather than the equity accounted earnings from these investments

9 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT opportunity to invest in an asx listed wind energy generation sector australia Alinta (WA) Installed Capacity (MW) 89.1 BBWP interest 100% Annual generation (GWh) Operation start date Dec 05 Lake Bonney Stage 1 (SA) Installed Capacity (MW) 80.5 BBWP interest 100% Annual generation (GWh) Operation start date Feb 05 European Asset Portfolio La Muela Norte 15% Sierra del Trigo 8% El Redondal 17% Serra da Loba 27% La Plata 12% El Sardon 12% Niederrhein 9% Australian Asset Portfolio Lake Bonney Stage 1 32% Alinta 68% 7

10 INVeSTMeNT HIGHLIGHTS babcock & brown wind partners is forecasting 1 a 7.25% yield *2 in fy2006 and an 8.0% yield * in fy2007, fully tax deferred forecast distribution yield* forecast earnings per stapled security* percent (%) cents ( ) the directors of babcock & brown wind partners have set a distribution growth target of at least 3.5% per annum 3 over the medium term 8 * please see section 9.8 for assumptions underlying the forecasts on this page and on page 9. there is no guarantee that these forecasts will be achieved. 1 based on the offer price 2 calculated as if stapled securities are acquired on 1 July this is a target only. there is no assurance that this target will be achieved. while this target is based on distribution per stapled security of 11.2 cents, refer to section 9.8 for assumptions affecting the basis for this target

11 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT forecast ebitda margin* forecast gearing ratio* percent (%) percent (%)

12 INVESTMENT HIGHLIGHTS LOOkINg FORWARD BABCOCk & BROWN WIND PARTNERS IS WELL POSITIONED TO TAkE ADvANTAgE OF NEAR TERM growth OPPORTUNITIES... 10

13 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT MANAgED By BABCOCk & BROWN *, AN EXPERIENCED WIND ENERgy DEvELOPER AND ADvISOR OvER ThE LAST 16 years BABCOCk & BROWN has ARRANgED FINANCE FOR OvER 3,000MW OF WIND ENERgy PROJECTS AND COMPANIES valued AT OvER US$3 BILLION (ESTIMATED) 2003 FINANCIER OF ThE year (SWEETWATER 1) AMERICAN WIND ENERgy ASSOCIATION 2005 EQUITy PROvIDER OF ThE year (OLIvO PORTFOLIO) EUROMONEy RENEWABLE ENERgy AWARDS * BBIM, a subsidiary of Babcock & Brown, is the manager of BBWP 11

14 chairman s letter 26 September 2005 Dear Investor It is my pleasure to invite you to become a Securityholder in Babcock & Brown Wind Partners ( BBWp ), formerly known as Global Wind Partners ( gwp ). BBWP offers a unique opportunity to invest in an ASX listed vehicle of scale, with a globally diversified portfolio focused purely on wind energy generation assets. The Offer of Stapled Securities pursuant to this Offer Document comprises an issue of approximately 258 million new Stapled Securities in BBWP to raise approximately $361 million. BBWP intends to expand its diversified global portfolio of wind energy generation assets after listing. Through its relationship with Babcock & Brown and via strategic alliances with wind generation development companies, BBWP will seek to identify superior investment opportunities. BBWP will be managed by Babcock & Brown and will have the benefit of access to its considerable experience in the wind energy generation sector and its global infrastructure investment and structuring expertise. BBWP was established as a single asset private investment vehicle in June 2003 by Babcock & Brown and other Founding Investors. Babcock & Brown Infrastructure invested in 50% of BBWP in December As a result of its rapid growth and increasing capital needs, BBWP is seeking to list on ASX. BBWP will use part of the proceeds of the Offer to acquire interests in wind energy generation assets in the US to complement its existing portfolio of assets in europe and Australia. The balance will be used to fund future pipeline investment opportunities, a number of which have been identified. Upon listing, BBWP will hold an interest in a global portfolio of wind farm assets diversified by geography, currency, equipment supplier, customer and regulatory regime. The initial portfolio will comprise investments in wind farms with a total gross installed capacity of MW located in europe (26%), North America (49%) and Australia (25%). each wind farm has adopted a predominantly contracted business model. A large part of the electricity produced by the Initial Portfolio is sold under offtake contracts with established utilities. All of the assets have fixed price operations and maintenance contracts and, other than the wind farms to be acquired in the US, local currency limited debt financing with hedged interest rates. This profile affords a level of stability with respect to the operating cashflows generated by the assets in the Initial Portfolio. Based on the assumptions set out in Section 9.8, BBWP expects to pay Distributions totalling 10.2 cents per Stapled Security in FY2006 and 11.2 cents in FY2007. At the Offer Price, this represents a forecast yield of 7.25% (calculated as if Stapled Securities acquired on 1 July 2005) and 8.00% in FY2006 and FY2007 respectively. Distributions in the Forecast Period are expected to be fully tax deferred. The Founding Investors are expected to retain or increase their holding of Stapled Securities in BBWP. Babcock & Brown intends to subscribe for additional Stapled Securities pursuant to the Offer so that at the time of listing, it will hold approximately 15% of all Stapled Securities. This investment represents an ongoing commitment by Babcock & Brown to BBWP and represents a strong alignment of interest between Securityholders and the Manager of BBWP. In addition, Babcock & Brown Infrastructure will hold approximately 16.5% to 17.5% of all Stapled Securities at the time of listing through the retention of its current holding. This Offer Document contains detailed information about BBWP. You should read it carefully before making an investment decision. The Directors look forward to welcoming you as a Securityholder in BBWP. Yours faithfully Peter Hofbauer Chairman Babcock & Brown Wind Partners 12

15 01 key questions Outlined below is a summary of the Offer. For detailed information refer to the Sections listed on the right. Where to find more information Topic Summary Section(s) What is the Offer? This Offer Document invites Applications for Stapled 2.1, 2.2, 2.4, Securities issued by BBWP. BBWP comprises BBWPL, 2.5, 2.8, 3.1 BBWPB and BBWPT which will apply for listing on ASX. BBWP owns a portfolio of wind farms and will acquire a further portfolio of wind farms in the US with part of the proceeds of the Offer What are the terms The Offer Price is $1.40 per Stapled Security 2.1, 3 of the Offer? BBWP is seeking to raise approximately $361 million pursuant to the Offer 1 BBWP reserves the right to accept oversubscriptions of up to 25 million Stapled Securities to raise an additional $35 million Offer opens at 9am (Sydney time) on 4 October Offer closes at 5pm (Sydney time) on 21 October Stapled Securities are expected to commence trading on ASX by 28 October 2005 (on a deferred settlement basis) 3 Who can invest? The Offer is only open to persons who are selected by 3 the Foundation Offer Underwriter, eligible Retail Investors whose Broker has received a firm allocation or persons who are Institutional Investors There is no general public offer This Offer Document is not registered under the securities laws of any jurisdiction outside Australia What is the allocation policy BBWP, in consultation with the Financial Adviser 3 of the Issuers? and the Joint Bookrunners, reserves the right to reject any Application or to allocate to any Applicant a lesser number of Stapled Securities than they applied for The allocation split between the Foundation Offer, Broker Firm Offer and Institutional Offer will be at the sole discretion of BBWP in consultation with the Financial Adviser and the Joint Bookrunners Who are the Issuers? Babcock & Brown Wind Partners Pty Ltd (which will 2.8, convert to a public company on 30 September 2005 and will be known as Babcock & Brown Wind Partners Limited) Babcock & Brown Wind Partners (Bermuda) Limited Babcock & Brown Wind Partners Services Limited as Responsible entity for the Babcock & Brown Wind Partners Trust, whose shares and units are stapled together and cannot be traded or dealt with separately Notes: 1 Assumes no oversubscriptions 2 These dates are indicative only and may change. BBWP has the right, in consultation with the Financial Adviser and the Joint Bookrunners, to amend these dates without notice, including, subject to the Corporations Act and the ASX Listing Rules, to close the Offer early, to extend the Offer closing date, to accept late Applications or to withdraw the Offer at any time prior to the Allotment Date. If any of these dates are changed, subsequent dates may also change. You are encouraged to submit your Application as soon as possible after the Offer opens. 3 Subject to ASX agreeing to list the Issuers and quote the Stapled Securities 13

16 01 key QUeSTIONS Where to find more information Topic Summary Section(s) Who owns the Babcock & Brown Wind Partners Services Limited 2.9, 5.3 Responsible entity? is a subsidiary of Babcock & Brown Who is the Manager? Babcock & Brown Infrastructure Management Pty Ltd, 2.9, 5.3 a subsidiary of Babcock & Brown What are the significant Provides investors with focused exposure to the 2.4, 2.5, 2.6, 2.7, 3.10, benefits of the Offer? wind energy generation sector through investment 9.8 in a globally diversified wind energy generation asset portfolio Forecast yield based on Offer Price of 7.25% for the Financial Year and 8.00% for the Financial Year 2007 based on the assumptions set out in Section 9.8 Stapled Securities can be traded on ASX once quoted What are the potential risks Potential risks are set out in more detail in Section which may be significant? and include the following: Capital and income distributions are not guaranteed and can be affected by changes in taxation laws, including double tax treaties The trading price of Stapled Securities on ASX may fall as well as rise The Wind Farm Assets have borrowings and therefore BBWP s interest in those assets is geared The investments in Wind Farm Assets in jurisdictions other than Australia will have operations and income denominated in currencies other than Australian dollars. Currency fluctuations may affect the return on your investment Variability in wind thereby affecting the amount of energy produced by a wind farm Changes in regulatory programmes from those currently available to wind farms as a source of renewable energy Past performance is not an indication of future performance What assets are 15 wind farms in 4 countries across 3 continents: 2.5, 6 in the Initial Portfolio? 2 wind farms in Australia 8 wind farms in europe 5 wind farms in the US What are the proceeds of the Funds raised under the Offer will primarily be used 2.2, 2.3, 2.6, Offer going to be used for? to acquire wind energy generation assets in the US, 3.2, 5.5, 9.10 to meet the costs of securing rights to a pipeline of future assets, to meet expenses of the Offer and as funds to be applied towards the acquisition of additional wind energy generation assets including potentially the Framework Assets Notes: 4 Calculated as if Stapled Securities acquired on 1 July

17 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Where to find more information Topic Summary Section(s) What are the fees and A Base Fee and an Incentive Fee payable to BBIM 2.10, 8 expenses payable by BBWP? A quarterly fee of 1.4% p.a. of Net Investment Value, split between BBWPL (1% p.a.), BBWPS (0.2% p.a.) and BBWPB (0.2% p.a.) under the Management Services Agreements less, in the case of BBWPS only, the amount of the remuneration payable to the Responsible entity There may also be an entitlement to an incentive fee related to the relative performance of BBWP payable half yearly under the BBWPL Management Services Agreement calculated as 20% of the amount (if any) of the excess percentage return of Stapled Securities over the S&P/ASX 200 Accumulation Index multiplied by BBWP s market capitalisation at the end of the half year Remuneration of the Responsible entity, currently $500,000 p.a. (increased by annual changes in CPI) Fees for custody services, acquisitions, legal services, administrative management of individual wind farms, financing and management will be paid to the relevant Babcock & Brown entity or other relevant service provider The fees and expenses of the Offer (including underwriting fees) and pre-offer related transactions which are payable out of the proceeds of the Offer are estimated to total $33 million, exclusive of GST What are the significant Securityholders may be subject to Australian tax on their , 11.3 tax implications share of taxable income of BBWPT and on dividends received from BBWPL and BBPWB. Distributions from BBWPT could include tax deferred amounts. More information for Australian tax resident Securityholders is outlined in the Taxation Report at Section 11.3 Investors should consider seeking their own tax advice prior to deciding whether to invest in BBWP and Stapled Securities issued by it Will the Issuers have foreign Debt funding for Wind Farm Assets is typically 9.14 exchange arrangements? denominated in the currency of the relevant Wind Farm Asset s business At the BBWP level, borrowings are either denominated in the currency of proposed capital investments, or the Board may consider entry into currency swap arrangements depending on the nature of the proposed investment Board to determine appropriate hedging strategy of expected equity distributions from overseas to BBWP What are the borrowing Secured debt funding for Wind Farm Assets in local 9.15 arrangements in relation currency and on a limited recourse basis to BBWP to the Issuers and Initial and its other investments Portfolio? Secured euro denominated Debt Facility available to BBWPL to fund its capital investment in the Olivo Acquisition and to refinance an equity bridge facility in connection with the acquisition of the Niederrhein Wind Farm 15

18 01 key QUeSTIONS Where to find more information Topic Summary Section(s) What is the dispute Babcock & Brown Wind Partners Services Limited 13.4 resolution procedure provides a complaints handling and dispute resolution to deal with complaints? process for Securityholders and is a member of an external complaints resolution body Is there a cooling off period? Applicants have no cooling off rights in relation to 3 Stapled Securities for which they apply because cooling off rights do not apply where the financial product will be quoted on ASX. However once the Stapled Securities are quoted on ASX you can offer your Stapled Securities for sale How can further information By speaking to your accountant, stockbroker, lawyer, 3 be obtained? Australian financial services licensee, authorised representative or other professional adviser By calling the Babcock & Brown Wind Partners Stapled Security Offer Information Line on or visiting The Babcock & Brown Wind Partners Stapled Security Offer Information Line will be open from 8.30am to 5.30pm (Sydney time) Monday to Friday from the date this Offer Document is lodged with ASIC until the Offer closes During the Offer Period, a paper copy of the Offer Document will be provided free of charge to any person in Australia who requests a copy by contacting the Babcock & Brown Wind Partners Stapled Security Offer Information Line on or from your Broker Where do I get Broker Firm Offer: An Application Form accompanies At back of Offer an Application Form? this Offer Document Document Foundation Offer: contact the Foundation Offer Underwriter Institutional Offer: contact the relevant Joint Bookrunner Contact details For further contact details, see the Corporate Directory At back of Offer on the inside back cover of this Offer Document Document 16

19 02 investment overview 2.1 the offer The Offer comprises an issue of approximately 258 million Stapled Securities in BBWP to raise approximately $361 million which is fully underwritten by the Underwriters. BBWP reserves the right to accept oversubscriptions of up to 25 million Stapled Securities to raise an additional $35 million. each Stapled Security will consist of one unit in BBWPT ( unit ), one ordinary share in BBWPL ( BBWpl share ) and one ordinary share in BBWPB ( BBWpB share ). Under the Constitutions and by virtue of the Stapling Deed, a Unit, a BBWPL Share and a BBWPB Share will be stapled together and cannot be traded or dealt with separately. As at the date of this Offer Document, BBWPL is a proprietary company (which will convert to a public company on 30 September 2005) incorporated in Australia, BBWPT is an Australian registered managed investment scheme whose Responsible entity is BBWPS and BBWPB is a company incorporated in Bermuda. 2.2 sources and uses of offer proceeds Funds raised under the Offer will primarily be used to acquire an interest in wind energy generation assets in the US, to meet the costs of securing rights to a pipeline of future assets, to meet expenses of the Offer and provide funds to be applied towards the acquisition of interests in additional wind energy generation assets including potentially the Framework Assets. Refer to Section 5.5 for further details on the Framework Assets. The sources and uses of the Offer proceeds are shown in Figure 2.2 below: Figure 2.2 Sources and uses of Offer proceeds A$million A$million Oversubscribed Oversubscribed Sources Offer 1 Offer 2 Uses Offer 1 Offer 2 Proceeds from Offer Purchase of interests in US Assets Reserved funds for contributions to and costs in relation to purchase of Framework Assets and securing other potential acquisition opportunities plus working capital expenses of the Offer (includes pre-offer related transactions) Total Total Assumes no oversubscriptions 2 Assumes oversubscriptions of 25 million Stapled Securities 3 Includes approximately $28 million of Offer costs and approximately $5 million of pre-offer related transactions costs 2.3 BBWp s investment strategy BBWP s investment strategy is to grow Securityholder wealth through management of the Initial Portfolio and the acquisition of additional wind energy generation assets. Benefits from economies of scale and diversification are expected across the investment portfolio through a combination of existing wind farm projects entering commercial operation and potential future acquisitions. BBWP will continue to pursue further investments in wind energy generation assets and associated businesses in accordance with its investment policy which can be articulated as follows: attractive offtake arrangements: assets governed by a well established or defined legislative and regulatory framework and/or benefit from power purchase arrangements with established utilities predictable operating costs: where appropriate, assets which have operations and maintenance contracts with reputable operators 17

20 02 INVeSTMeNT OVeRVIeW favourable locations: assets situated on sites which have a combination of quality wind energy resource, efficient access to transmission infrastructure and long term land tenure arrangements long-term investment horizons with repowering opportunities: assets which have the potential to create value by adopting improved technology over time superior asset quality and condition: wind turbines and associated equipment manufactured by industry leaders which, where appropriate, are maintained by established turbine manufacturers and/or reputable operators manageable construction risk or commissioning risks: assets which are in operation or, where under construction, offer completion and operating performance guarantees which are provided by reputable turbine suppliers or operators possibility of significant stakeholding: investments with the opportunity for BBWPL or BBWPB to make key commercial and financial decisions or where co-investors investment objectives are consistent with BBWP s goals portfolio diversification: generally across the wind farms in the portfolio, including by geography, contract counterparty and stage in wind farm life cycle BBWP will review its investment policy from time to time and its policy may be varied. 2.4 BBWp investment highlights unique specialist fund managed by an experienced developer, manager and investor in the wind energy industry BBWP offers a unique opportunity to invest in a vehicle of significant scale focused solely on the growing global wind energy generation sector. After successful completion of the Offer and the US Acquisition and the Olivo Acquisition, BBWP will be a specialist wind energy generation investment fund with an initial market capitalisation of approximately A$657 million Babcock & Brown has a long track record in the wind energy sector. Over the last 16 years, Babcock & Brown has arranged financing for over 3,000MW of wind energy projects and companies, at an estimated value of over US$3 billion. Babcock & Brown is active as an adviser, developer and investor in the wind energy sector in North America, europe and Australia The Boards consist of 2 directors who are Babcock & Brown executives and 3 independent directors (2 in the case of BBWPL and BBWPB), each with considerable experience in senior management BBWP is managed by BBIM, a subsidiary of Babcock & Brown. Babcock & Brown is an experienced investment manager with 4 managed funds currently listed on ASX (in addition to BBWP) high quality, geographically diversified portfolio of wind farms Following successful completion of the Offer, the US Acquisition and the Olivo Acquisitions, BBWP will own a portfolio of investments in 15 wind farms which have an aggregate gross installed capacity of MW and are located in the United States of America, europe and Australia Through its experience in operating in europe and Australia, BBWP has substantial industry knowledge and an understanding of complex regulatory regimes. This is set to broaden to the US as a result of the US Acquisition Most of the wind farms in the Initial Portfolio have been in operation for 2 years or less and are covered by manufacturer warranty programs. BBWP s wind turbines are manufactured, and in most cases maintained, by industry leading manufacturers including Vestas, Mitsubishi, Nordex, Gamesa and General electric The Wind Resource and forecast energy production at each wind farm site has been assessed by expert advisers 18

21 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT investment fund of scale BBWP has already shown its ability to achieve growth by securing quality assets for its portfolio. BBWP started out just over 2 years ago as a single asset private investment To date, BBWP has sponsored the construction of two wind farms in Australia and completed the acquisition of a number of wind farms in europe. BBWP will use part of the Offer proceeds to complete the acquisition of interests in 5 wind farms in the US As the number of assets under management increases, BBWP will seek to grow Securityholder wealth through operational and capital management techniques such as securing competitive cost of capital relative to small industry participants The size and diversification of the assets under management and the ring-fencing of assets from one another such that they operate as individual businesses assists BBWP in managing its exposure to risks within individual Wind Farm Assets The expected consequential effect is that the impact of risks and variability at the individual Wind Farm Asset level should diminish as the number of wind energy generation assets under BBWP s management increases and the role played by any one Wind Farm Asset within the portfolio as a whole decreases 7.25% distribution forecast for fy growing to 8.00% in fy 2007, fully tax deferred, based on offer price 2 BBWP offers Securityholders an attractive and growing cash yield, fully tax deferred in the Forecast Period Operating cashflows are underpinned by long-term offtake contracts and/or legislation supporting individual project revenues which the Directors intend to use to fund forecast Distributions The Directors have set a distribution growth target, after the Forecast Period, of at least 3.5% per annum 3 over the medium term identifiable growth opportunities secured from Babcock & Brown In the Forecast Period, BBWP s growth is expected to come from the Initial Portfolio which comprises wind farms which are either in or expected to come into commercial operation in the Forecast Period BBWP has: An opportunity to acquire a further wind farm asset in Australia by virtue of the rights acquired pursuant to the LB2 Acquisition Agreement Further rights to acquire wind farms under the Framework Agreements in respect of existing and future wind farm developments in the US, Spain and Germany BBWP has entered into three Framework Agreements with Babcock & Brown. These Framework Assets are expected to offer BBWP additional installed capacity in the US and in Spain of up to 700MW in aggregate The wind farms to be acquired pursuant to the Olivo Acquisition and the US Acquisition are included in the Directors Forecasts. Neither LB2 nor the Framework Assets are included in the Directors Forecasts fast growing global market electricity has been produced from wind in significant quantities since the 1980s with 28% compound annual growth in installed capacity from 1999 (13,932MW) to 2004 (47,912MW) Growth in installed capacity in the wind energy generation market has been largely driven by supportive legislative environments aimed at meeting long term renewable energy targets adopted by many nations around the world. These targets are designed to reduce greenhouse gas emissions, reduce dependency on non-renewable resources and/or improve the security of energy supply from sources within their national boundaries Approximately US$78.2 billion is projected to be invested globally between 2005 and 2009 in building new wind energy projects, in particular in europe and North America 1 Calculated as if Stapled Securities are acquired on 1 July Based on assumptions set out in Section This is a target only. There is no assurance that this target will be achieved. While this target is based on distribution per Stapled Security of 11.2 cents, refer to Section 9.8 for assumptions affecting the basis for this target 19

22 02 INVeSTMeNT OVeRVIeW industry poised for consolidation Many wind farm development opportunities and operating wind farms in europe have been sponsored by individuals and smaller companies taking advantage of the relatively low barriers to entry into the market for small individual wind farms Rapid development of the industry and the increasing scale of wind farm developments have led to the more recent involvement of larger companies in the wind energy sector and the start of a shift in ownership away from individuals and smaller developers This presents an opportunity to consolidate ownership of small and medium sized projects within larger specialised industry investors such as BBWP 2.5 initial portfolio After giving effect to the Offer, the US Acquisition and the Olivo Acquisition, BBWP will have investments in 15 wind farms highlighted below A B C D G H I J k L e,f North america USA A Combine Hills B Caprock C Blue Canyon D Sweetwater 1 & 2 Europe Germany - Niederrhein Wind Farm e Wachtendonk F Bocholt-Liedern Spain - Olivo Portfolio G Serra da Loba H el Redondal I La Muela Norte J La Plata k el Sardon L Sierra del Trigo asia pacific Australia M WA - Alinta Wind Farm N SA - Lake Bonney M N Further details of BBWP s Initial Portfolio are set out in Section 6. Details of the key terms and events relating to the US Acquisition and the Olivo Acquisition are set out in Section investment opportunities BBWP has identified a number of potential investment opportunities for its future growth, none of which are included in the Directors Forecasts. An important component of BBWP s medium term growth strategy is the three Framework Agreements relating to wind farms sourced by Babcock & Brown and/or parties identified by Babcock & Brown. 20

23 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Where? Who with ultimately? Potential opportunity US Babcock & Brown 50% of Babcock & Brown s Class B Member interests in 4 wind farms with estimated 216 MW total gross installed capacity Spain Gamesa Up to 450 MW in Spain over the next 3 years Germany Renerco First right of refusal to acquire wind farms in Germany BBWP believes that it is well placed to take advantage of the strong underlying growth potential of the global wind energy industry and any consolidation opportunities present in a currently dispersed and fragmented market. BBWP believes future investment opportunities are likely to be sourced primarily from Babcock & Brown, strategic alliances, private trade sales and public tenders. 2.7 financial highlights and distribution policy distributions Based on the summary forecast financial information set out below and the assumptions in Section 9.8, BBWP is forecasting Distributions totalling 10.2 cents per Stapled Security in FY2006 and 11.2 cents in FY2007. Based on the Offer Price, this represents a forecast yield of 7.25% 1 and 8.00% in FY2006 and FY2007 respectively. The Distributions are expected to be fully tax deferred during the Forecast Period. The Directors have set a Distribution growth target, after the Forecast Period, of at least 3.5% p.a. 2 over the medium term. BBWP intends to make Distributions half-yearly. The first Distribution will relate to the half year ending 31 December 2005 and is expected to be paid in March Potential investors should note that actual Distributions are subject to a number of risks as outlined in Section 10. BBWP cannot give any assurance and does not guarantee that the forecast level of Distributions will be achieved. For information on the tax deferred treatment, see the Taxation Report in Section financial information Figure 2.7 below summarises the financial information outlined in Section 9 and should be read in conjunction with, and qualified by, the more detailed financial disclosures in that Section. The financial information in Figure 2.7 has been shown on an actual and a pro forma basis (the pro-forma basis shows the impact of 12 months of operations for those wind farms completing construction part way through Financial Year 2006 and the full year impact of corporate overheads, including the Base Fee payable to the Manager) ( pro forma directors forecast ). The Pro Forma Directors Forecast has been prepared to show the forecast financial performance and cash flow of BBWP for the year ending 30 June This is not required for the year ending 30 June 2007 as all wind farms in the Initial Portfolio are expected to be operational for that full year. Note that the financial performance of the Framework Assets and Lake Bonney Stage 2 are not included in the Directors Forecasts or the Pro Forma Directors Forecasts due to the early stage of their development or the prospective nature of individual wind farms as acquisition targets. Further details of the Pro Forma Directors Forecast are provided in Section Calculated as if Stapled Securities are acquired on 1 July This is a target only. There is no assurance that this target will be achieved. While this target is based on distribution per Stapled Security of 11.2 cents, refer to Section 9.8 for assumptions affecting the basis for this target 21

24 02 INVeSTMeNT OVeRVIeW The information in Figure 2.7 has been prepared under Australian equivalents to International Financial Reporting Standards ( a-ifrs ) Figure 2.7 Summary of Directors Forecast and Pro Forma Directors Forecast Pro Forma Directors Directors Directors Forecast Forecast Forecast year ended year ended year ended (A$ 000) 30 June June June 2007 Total product revenue 76, , ,279 ebitda (after Base Fees) 57,454 76,018 80,164 ebit 37,508 50,523 54,169 Net profit before tax 19,320 26,587 31,393 Net profit after tax 13,524 18,611 21,975 Net operating cashflow 43,254 59,773 68,506 Net investing cashflow (395,616) (395,616) Net financing cashflow 526, ,069 (68,466) Cash available to distribute to equity 221, ,846 52,586 Forecast distribution 47,620 47,620 52,546 Forecast distribution yield % % % Average percentage of distribution tax deferred 100% 100% 100% The Directors of BBWPL, BBWPS and BBWPB respectively believe that that entity should have sufficient working capital to carry out its objectives. sensitivities in financial information BBWP can give no assurance and does not guarantee that the Directors Forecasts will be achieved or that it will be able to make Distributions during the Forecast Period at the Distribution levels forecast for the Forecast Period. This is because BBWP s actual financial results and Distributions will be affected by many factors beyond BBWP s control. A number of these factors are set out in Sections 9.8 and 9.11 where further details of BBWP s financial information, the assumptions upon which the Directors Forecasts are based and sensitivities to changes in key assumptions are provided. The forecast operating results and cash flow are subject to movements in a number of key variables. These variables include wind and its predictability, market pricing in Spain, foreign exchange and interest rates. A sensitivity analysis of the impact of changes in these variables is provided in Section More detailed financial information is set out in Section 9. More information on predicting the wind can be found at Section 6.4 and on market pricing in Spain at Section issuer details BBWP was formerly known as Global Wind Partners. BBWP now consists of three entities: BBWPL is an Australian company holding BBWP s interests in the european Assets and the Australian Assets (other than units in two trusts with interests in the Alinta Wind Farm, which are held by BBWPT) in the Initial Portfolio. Upon completion of the US Acquisition, BBWPL will hold BBWP s investment in the US Assets. BBWPL will convert into a public company as of 30 September 2005 BBWPT is an Australian registered managed investment scheme whose Responsible entity is BBWPS. This entity intends to invest in debt and non-controlling equity interests that have wind energy generation assets. It was registered on 26 September 2005 as a Registered Scheme 1 Based on the Offer Price 2 Calculated as if Stapled Securities are acquired on 1 July

25 BaBcock & Brown wind partners prospectus & product disclosure statement BBwpB, a company registered under the laws of Bermuda, does not currently own any assets. while at the present time this entity does not own any assets, it is currently intended that interests acquired by it would be located outside of australia each stapled security is made up of one BBwpl share, one unit (issued by BBwps as responsible entity of BBwpt) and one BBwpB share which, under each of the constitutions, are stapled together and cannot be traded or dealt with separately. in accordance with its requirements in respect of listed stapled securities, asx reserves the right to remove any or all of BBwpl, BBwpB and BBwpt from the official list if, while the stapling arrangements apply, the securities in one of these entities ceases to be stapled to the securities in the other entities or one of these entities issues securities which are not then stapled to the relevant securities in the other entities. refer to sections and for further details on the structure of BBwp and the rights attaching to the stapled securities and to the taxation report in section 11.3 for the potential tax implications of an investment in BBwp. Figure 2.8 sets out an overview of the structure of BBwp and its investments after giving effect to the offer and the acquisitions (other than lb2): Figure 2.8: Overview of BBWP structure Securityholders 100% Custodian Babcock & Brown Asset Holdings Pty Ltd Babcock & Brown Wind Partners (Bermuda) Limited stapled Babcock & Brown Wind Partners Limited stapled Babcock & Brown Wind Partners Trust Responsible Entity Babcock & Brown Wind Partners Services Limited Manager Babcock & Brown Infrastructure Management Pty Ltd Managing Member Lake Bonney Stage 1 Wind Farm Australia Alinta Wind Farm Australia Olivo Wind Farms Spain Niederrhein Wind Farm Germany Sweetwater 1 & 2, Blue Canyon, Caprock & Combine Hills Wind Farms USA note: the diagram does not show all legal entities in the structure and is provided for illustrative purposes only. the wind farms in the usa are not wholly owned by BBwp. 23

26 02 INVeSTMeNT OVeRVIeW 2.9 responsible ENtity and manager The Responsible entity of BBWPT is Babcock & Brown Wind Partners Services Limited, a subsidiary of Babcock & Brown. The Responsible entity intends to hold the assets of BBWPT through a custodian. The Responsible entity will manage BBWPT in accordance with its duties to Securityholders under the Corporations Act and the Trust Constitution and will generally be responsible for the management of BBWPT. Further details of the Trust Constitution and the Responsible entity s obligations are specified in Section each of BBWPL, BBWPS and BBWPB has appointed BBIM as Manager pursuant to 25 year Management Services Agreements. BBIM will provide management services and make recommendations regarding the management of each of BBWPL, BBWPB and BBWPS to their respective Boards. BBIM will also act as the managing member of Babcock & Brown Wind Partners - U.S. LLC ( BBWpus ) (which is the BBWP and Babcock & Brown co-investment vehicle which owns interests in the US Assets). Responsibility for the corporate governance and actions of BBWPL, BBWPB and BBWPS will remain with their respective Boards. Refer to Section 5.3 for further details on the Responsible entity and management arrangements of BBWP management fees responsible Entity The Responsible entity, initially BBWPS, is entitled to claim remuneration from BBWPT s assets under the Trust Constitution. The Trust Constitution is summarised in Section The Responsible entity waives its rights to be remunerated the full amount of its entitlement under the Trust Constitution such that it is remunerated in an amount equal to A$500,000 per annum (increased by annual changes in CPI). This reflects the fact that services are to be performed for the Responsible entity by the Manager under the BBWPS Management Services Agreement. The Responsible entity may increase its fees from time to time to reflect any increase in its overheads as responsible entity of BBWPT and notice of any such increase would be given as required by law and disclosed to ASX. manager Under the Management Services Agreements, BBIM will be entitled to an amount per annum in respect of expenses. This amount is initially set at $6 million per annum payable by BBWPL. Throughout the term of the Management Services Agreements, this amount increases by CPI and may be increased by approval of the relevant Board after certain periods of time (which do not exceed 5 years) to reflect increased actual or estimated expenses. BBIM also has a right to recover costs it pays on behalf of BBWP. In addition, it will receive a Base Fee and an Incentive Fee as shown in Figure 2.10: Figure 2.10: Management fees Payor Fee BBWPL BBWPS BBWPB Base Fee 1.0% per annum of the 0.2% per annum of the 0.2% per annum of the Net Investment Value Net Investment Value Net Investment Value less the amount of the remuneration to the Responsible entity (currently $500,000 p.a.) Incentive Fee 20% of the amount (if any) Nil Nil of the excess percentage return of Stapled Securities over the S&P/ASX 200 Accumulation Index multiplied by BBWP market capitalisation at the end of the period, payable for each half year For definitions and a more detailed explanation of other items referred to in Figure 2.10, see Section 8. 24

27 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT 2.11 BaBcock & BroWN strategic investor in BBWp Babcock & Brown established BBWP in 2003 and was a Founding Investor at that time. Pursuant to the Australian Acquisitions and the Offer, Babcock & Brown has or will subscribe for additional Stapled Securities such that its total holding of Stapled Securities will be approximately 15% of all Stapled Securities on the Allotment Date (including any oversubscriptions). It is the current intention of Babcock & Brown that it will not sell or otherwise dispose of these Stapled Securities in BBWP in the foreseeable future. Babcock & Brown has contractually committed not to dispose of these Stapled Securities for a period of 6 months from the Allotment Date. For terms of these voluntary escrow arrangements, see Section a source of investment opportunities Babcock & Brown is highly experienced in originating, structuring, and advising on wind energy generation transactions. For example, Babcock & Brown was awarded the 2005 euromoney Renewable energy equity Provider of the Year and the 2003 American Wind energy Association Financier of the Year for its roles on certain wind farm projects in europe and the US respectively. In June 2003, Babcock & Brown arranged the first limited recourse financing of a wind farm in Australia the Lake Bonney Stage 1 wind farm. Through its extensive industry knowledge, relationships with key industry participants including turbine manufacturers and its established reputation amongst wind farm developers as a specialist financier and investor in the industry, Babcock & Brown is well positioned to originate investment opportunities for BBWP. BBWP has rights to a potential pipeline of assets in europe and the US under the Framework Agreements that it has entered into with Babcock & Brown. These opportunities were originated by Babcock & Brown. Although Babcock & Brown is under no obligation to offer to BBWP each or any wind energy opportunity in which Babcock & Brown is a developer, financial adviser or investor, as Manager, BBIM is under an obligation to: identify investment opportunities for BBWP under the terms of the Management Services Agreements that comply with, among other items, the investment strategy of BBWP at that time facilitate non-exclusive access to Babcock & Brown s worldwide resources and knowledge base in relation to wind energy generation and closely related investments. BBWP is under no obligation to invest in any opportunities presented by BBIM. More information on the relationship between Babcock & Brown and BBWP is set out in Section taxation The taxation consequences of an investment in Stapled Securities will depend upon your particular circumstances. It is your responsibility, as a potential investor, to make your own enquiries concerning the taxation consequences of an investment in BBWP. If you are in doubt as to the consequences of an investment, you should consult with your financial or other professional adviser before investing. The Taxation Report in Section 11.3 provides information regarding how Distributions from BBWP could be taxed in the hands of Australian tax residents ENviroNmENtal, Ethical and other considerations BBWP seeks to comply with the current laws and regulations in relation to labour standards and environmental, social and ethical considerations. However, investment decisions are based on economic factors investment risks An investment in BBWP is subject to general and specific risks. In particular, the ability of BBWP to pay Distributions to Securityholders is dependent upon the financial performance of the assets and entities in which it invests. Some of these risks are described in detail in Section 10. Before investing in BBWP, potential investors should give careful consideration to these risks and to the assumptions underlying the forecasts of financial performance in Section 9.8 and should review and consider carefully this Offer Document in its entirety. 25

28 03 details of the offer 3.1 structure of the offer BBWP is seeking to raise approximately A$361 million by way of the Offer of approximately 258 million Stapled Securities with an Offer Price of $1.40 per Stapled Security (this is referred to in this Offer Document as the Offer). The Offer is fully underwritten by the Underwriters. BBWP reserves the right to accept oversubscriptions of up to 25 million Stapled Securities to raise up to an additional $35 million. The Offer will comprise: A Foundation Offer open to investors who are selected by the Foundation Offer Underwriter The Broker Firm Offer open to eligible Retail Investors who are invited by their Broker to apply The Institutional Offer consists of an invitation to apply for Stapled Securities to be made to eligible Institutional Investors in Australia and certain other international jurisdictions. Determination of which additional jurisdictions, if any, are eligible for inclusion will be at the sole discretion of BBWP in conjunction with the Financial Adviser and the Joint Bookrunners and will only be in jurisdictions where it is legal to participate in the Offer There will be no general public offer. The allocation split between the Foundation Offer, Broker Firm Offer and Institutional Offer will be at the sole discretion of BBWP in consultation with the Financial Adviser and the Joint Bookrunners. 3.2 offer proceeds Figure 3.2 Sources and uses of Offer proceeds A$million A$million Oversubscribed Oversubscribed Sources Offer 1 Offer 2 Uses Offer 1 Offer 2 Proceeds from Offer Purchase of interests in US Assets Reserved funds for contributions to and costs in relation to purchase of Framework Assets and securing other opportunities plus working capital expenses of the Offer (includes pre-offer related transactions) total total Assumes no oversubscriptions 2 Assumes oversubscriptions of 25 million Stapled Securities 3 Includes approximately $28 million of Offer costs and approximately $5 million of pre-offer related transactions costs 3.3 purpose of the offer Funds raised under the Offer will primarily be used to acquire wind energy generation assets in the US, to meet the costs of securing rights to a pipeline of future assets, to meet expenses of the Offer and as funds to be applied towards the acquisition of additional wind energy generation assets including potentially Framework Assets in the US, Spain and Germany. 3.4 voluntary EscroW Pursuant to the Offer, Babcock & Brown will subscribe for additional Stapled Securities at the Offer Price such that its aggregate holdings after the Offer will be approximately 15%. These Stapled Securities will rank equally in all respects with the Stapled Securities offered to other investors under the Offer. It is the current intention of Babcock & Brown for these Stapled Securities to be subject to voluntary escrow for 6 months after the Allotment Date. For the terms of these voluntary escrow arrangements, see Section

29 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT This escrow arrangement is a separate arrangement from Babcock & Brown s obligations as Foundation Offer Underwriter. 3.5 foundation offer Who can apply in the foundation offer? The Foundation Offer is open to investors who are selected by the Foundation Offer Underwriter. To apply under the Foundation Offer, an Applicant must have received an invitation from BBAH (the Foundation Offer Underwriter). All Stapled Securities under the Foundation Offer will be issued at the Offer Price. how to apply Application procedures for investors under the Foundation Offer will be advised by the Foundation Offer Underwriter ( foundation offer instructions ). BBWP reserves the right to reject any Application Form which is not correctly completed or which is submitted by a person whom it believes may be an ineligible Applicant or to waive or correct any errors made by the Foundation Offer Applicant in completing any Application Form. Application Money received under the Foundation Offer will be held in a special purpose account until Stapled Securities are issued to successful Foundation Offer Applicants. No interest will be payable on Application Money. closing date for the foundation offer The Foundation Offer opens at 9.00am (Sydney time) on Tuesday 4 October 2005 and closes at 5.00pm (Sydney time) on Friday 21 October BBWP reserves the right to alter the timetable, including extending the closing date or closing the Foundation Offer early. acceptance of applications An Application under the Foundation Offer is an offer by the Applicant to BBWP to subscribe for all or any of the Stapled Securities specified in the Application Form at the Offer Price on the terms and conditions set out in this Offer Document (including any supplementary or replacement offer document) and the Foundation Offer Instructions. To the extent permitted by law, the offer by a Foundation Offer Applicant is irrevocable. allocation policy under the foundation offer The allocation of Stapled Securities amongst applicants in the Foundation Offer will be determined by the Foundation Offer Underwriter, in consultation with BBWP, in its absolute discretion. There can be no assurance that any Applicant will be allocated any Stapled Securities, or the number or amount of Stapled Securities for which it has applied. 3.6 BrokEr firm offer Who can apply in the Broker firm offer? The Broker Firm Offer is only open to eligible Retail Investors whose Broker has received a firm allocation. All Stapled Securities under the Broker Firm Offer will be issued at the Offer Price. how to apply Broker Firm Applicants must complete and lodge the Application Form attached to or accompanying this Offer Document with their Broker. Application Forms must be completed in accordance with the instructions set out on the reverse of the form. If you elect to participate in the Broker Firm Offer, your Broker will act as your agent in submitting your Application Form and Application Money. It will be your Broker s responsibility to ensure that they are submitted before 5.00pm (Sydney time) on the date on which the Broker Firm Offer closes. BBWP takes no responsibility for any acts or omissions by your Broker in connection with your Application. BBWP reserves the right to reject any Application which is not correctly completed or which is submitted by a person whom it believes may be an ineligible Applicant or to waive or correct any errors made by the Applicant in completing any Application Form. Application Money received under the Offer will be held in a special purpose account until Stapled Securities are issued to successful Broker Firm Offer Applicants. No interest will be payable on Application Money. 27

30 03 DeTAILS OF THe OFFeR closing date for the Broker firm offer The Broker Firm Offer opens at 9.00am (Sydney time) on Tuesday 4 October 2005 and closes at 5.00pm (Sydney time) on Friday 21 October BBWP reserves the right to alter the timetable, including extending the closing date or closing the Broker Firm Offer early. acceptance of applications An Application under the Broker Firm Offer is an offer by the Broker Firm Offer Applicant to BBWP to subscribe for all or any of the Stapled Securities specified in the Application Form at the Offer Price on the terms and conditions set out in this Offer Document (including any supplementary or replacement offer document) and the Application Form. To the extent permitted by law, the offer by a Broker Firm Applicant is irrevocable. allocation policy under the Broker firm offer Firm Stapled Securities which have been allocated to Brokers will be issued to Broker Firm Offer Applicants nominated by those Brokers. It will be a matter for the Brokers how they allocate firm Stapled Securities among their retail clients, and they (and not BBWP or the Joint Bookrunners) will be responsible for ensuring that any retail clients who may have received a firm allocation from them receive the relevant Stapled Securities. BBWP reserves the right to treat any Applications in the Broker Firm Offer which are for more than 150,000 Stapled Securities, or which are from persons whom they believe may be Institutional Investors, as Applications in the Institutional Offer or to reject them. BBWP also reserves the right to aggregate any Applications which it believes may be multiple Applications from the same person. 3.7 institutional offer invitations to bid The Institutional Offer is open to Institutional Investors in Australia and certain international jurisdictions which are invited to bid for Stapled Securities in the Institutional Offer. Determination of which additional jurisdictions are eligible for inclusion will be at the discretion of the Joint Bookrunners in consultation with BBWP and will only be in jurisdictions where it is lawful for the Offer to be made. institutional offer process Application procedures for Institutional Investors will be advised by the Joint Bookrunners. allocation policy under the institutional offer The allocation of Stapled Securities amongst Applicants in the Institutional Offer will be determined by BBWP, in consultation with the Financial Adviser and the Joint Lead Mangers, in its absolute discretion. There can be no assurance that any Applicant will be allocated any Stapled Securities, or the number or amount of Stapled Securities for which it has applied. 3.8 oversubscription allocation policy No person is eligible to apply for any Oversubscription Stapled Securities unless they apply for Stapled Securities under the Foundation Offer, the Broker Firm Offer or the Institutional Offer. No person is assured of being allotted any Oversubscription Stapled Securities. If BBWP exercises its right to accept oversubscriptions, the allocation of Oversubscription Stapled Securities will be made entirely in BBWP s discretion. BBWP reserves the right to reject or scale back any Application for Oversubscription Stapled Securities in any manner BBWP considers appropriate in its absolute discretion. No person is assured of being allotted the number of Oversubscription Stapled Securities for which they have applied. Timetables, restrictions and other relevant considerations of this Offer Document also apply, to the extent relevant, to Applications for Oversubscription Stapled Securities. 28

31 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT 3.9 underwriting agreement The Foundation Offer is underwritten by BBAH. each of the Broker Firm Offer and the Institutional Offer is underwritten by JPMorgan and UBS, and the Underwriters will also provide offer management services in respect of the Offer. Accordingly, the Offer (i.e. leaving aside any oversubscriptions) has been fully underwritten. The Underwriting Agreement entered into between BBWP and the Underwriters provides that the Underwriters may terminate the Underwriting Agreement in certain circumstances. Further details of the Underwriting Agreement, including the termination provisions, are set out in Section BBWP retains a discretion to accept Applications for fewer Stapled Securities than the Offer if the Underwriting Agreement is terminated asx listing Babcock & Brown will apply for listing of BBWP and quotation of the Stapled Securities on ASX under the code BBW within 7 days following the lodgment of this Offer Document with ASIC. If BBWP has not been admitted to the Official List within three months of the date of the Offer Document, any issue of Stapled Securities under this Offer Document will be void and all Application Money will be refunded in full. Interest will not be paid on Application Money refunded. This will also apply to all Applications if the Offer is cancelled or if contracts arising on acceptance of Applications are cancelled because the conditions regarding quotation of Stapled Securities on ASX are not satisfied. It is expected that the Stapled Securities will be quoted on ASX on Friday 28 October The contracts formed on acceptance of Applications under the Offer will be conditional on ASX agreeing to quote the Stapled Securities on ASX and payment in cleared funds of the Offer Price for the Stapled Securities. Trading of Stapled Securities is expected to occur on a deferred settlement basis until BBWP has advised ASX that initial holding statements have been despatched to Securityholders. It is expected that trading on a normal settlement basis will commence on Thursday 3 November It is the responsibility of Applicants to determine their allocation of Stapled Securities prior to trading in Stapled Securities. Applicants trading Stapled Securities prior to receiving a security holding statement will do so at their own risk. Prior to receipt of a security holding statement, information about your allocation or holding balance may be obtained by the Successful Applicant from the Registry. BBWP, on its own behalf and on behalf of the Joint Bookrunners, the Financial Adviser and the Registry, disclaims all liability whether in negligence or otherwise, to persons who trade Stapled Securities before receiving their security holding statement, whether on the basis of a confirmation of allocation provided by BBWP, a Joint Bookrunners, the Financial Adviser, a Broker, the Registry or otherwise chess & holding statements BBWP will apply to participate in CHeSS and, in accordance with the ASX Listing Rules and the ASTC Settlement Rules, will maintain an electronic issuer-sponsored subregister and an electronic CHeSS subregister. These two subregisters together will make up BBWP s principal register of Stapled Securities. Certificates will not be issued to Securityholders. The Stapled Securities will be CHeSS approved from the date of quotation on ASX in accordance with the ASX Listing Rules and ASTC Settlement Rules. All ASX trading in the Stapled Securities after listing will be settled through CHeSS. Applicants who elect to hold Stapled Securities on the issuer-sponsored subregister will be provided with a holding statement (which is similar to a bank statement) which sets out the number of Stapled Securities held. For Applicants who elect to hold Stapled Securities on the CHeSS subregister, BBWP will, on or shortly after Allotment, issue an allotment advice to investors that sets out the number of Stapled Securities allotted. At the end of the month in which Allotment occurs, ASTC (acting on behalf of BBWP) will provide investors with a CHeSS security holding statement that confirms the number of Stapled Securities held on the CHeSS subregister. A holding statement (whether or not issued by BBWP) will also provide details of a Securityholder s holder identification number (in the case of holdings on the CHeSS subregister) or security reference number (in the case of a holding on the issuer-sponsored subregister). Following distribution of these initial holding statements to all Securityholders, a holding statement will only be provided to a Securityholder at the end of any subsequent month during which the Securityholder s balance of Stapled Securities changes. Securityholders may request holding statements at any other time (although BBWP may charge an administration fee). 29

32 03 DeTAILS OF THe OFFeR 3.12 WithdraWal of offer and Early close of offer BBWP, in consultation with the Financial Adviser and the Joint Bookrunners, reserves the right to vary the key dates set out on page 3, including closing the Offer early or extending the closing date of the Offer, without notice. BBWP reserves the right to withdraw the Offer at any time prior to Allotment of the Stapled Securities, including if an insufficient number of Applications is received. If the Offer is withdrawn, Applicants will be refunded their Application Money without interest application monies and interest Application Monies received under the Offer will be held in a special purpose account until Stapled Securities are issued to Successful Applicants. No interest will be payable on Application Monies foreign selling restrictions The Offer to which this Offer Document relates is available to persons receiving the Offer Document (electronically or otherwise) in Australia. The distribution of this Offer Document in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Offer Document and/or the Application Forms who are not in Australia should seek advice on and comply with any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. This Offer Document does not constitute an offer or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. The Stapled Securities have not been and will not be registered under the US Securities Act or the laws of any state of the United States, and may not be offered or sold within the United States or to or for the account or benefit of a US Person (as defined in Regulation S of the US Securities Act) except under an exemption from the registration requirements of the US Securities Act or applicable US state securities laws or in a transaction not subject to such registration requirements BrokEragE, commission and stamp duty No brokerage, commission or stamp duty is payable by Applicants who apply for Stapled Securities using the Application Form. Investors who buy or sell Stapled Securities on ASX may be subject to brokerage and other transaction costs. Under current legislation, there is no stamp duty payable on the sale or purchase of Stapled Securities on ASX taxation The taxation consequences of any investment in Stapled Securities will depend on your particular circumstances. It is your responsibility, as a potential investor, to make your own enquiries concerning the taxation consequences of an investment in BBWP. If you are in doubt as to the course you should follow, you should seek professional advice from your accountant, financial adviser, stockbroker, lawyer or other professional adviser ENquiriEs If you have any questions about the Offer or how to complete the Application Form, you should call the Babcock & Brown Wind Partners Stapled Security Offer Information Line on or alternatively contact your stockbroker, accountant or financial adviser. 30

33 04 global wind industry 4.1 today s WiNd ENErgy industry In the last twenty years, wind energy has gone from an emerging source of fuel to a significant energy resource in many countries. Generation costs have fallen by 50% over the last 15 years moving progressively towards the cost of conventional energy sources in many markets. It is estimated that between 1999 and 2004 the compound annual growth rate of installed capacity was 28%. As at December 2004, there were approximately 74,000 wind turbines in more than 60 countries providing a total of 47,912MW of installed capacity. In 2004 alone, an additional 8,154MW of wind energy capacity was installed globally, generating enough electricity to power over 3.2 million average european homes. Wind energy now generates 0.6% of the world s electricity supply (this takes into account non-oecd countries which have not commenced development of a wind energy industry) and is expected to represent 2.4% of global electricity production by Figure 4.1.1: Global cumulative installed capacity wind energy (actual ) (MW) Source: BTM Consult Report 2004 europe dominates the wind energy industry globally, accounting for 72% of total installed capacity, equivalent to 34,725 MW. Within europe, Germany and Spain are the largest markets, accounting for 47% and 24% respectively of europe s total installed capacity. The Americas is the second largest market, accounting for 7,391 MW or 15% of global installed capacity. The USA is the largest market within the Americas. Australia accounts for 421 MW of installed capacity, equivalent to almost 1% of the global market. 31

34 04 GLOBAL WIND INDUSTRY Figure: 4.1.2: Wind energy installed capacity 2004 americas usa 91% canada 6% costa rica 1% other 2% Total = 7,391MW europe germany 47% denmark 9% spain 24% italy 4% netherlands 3% other 13% Total = 34,725MW global america 15% europe 73% south and east asia 8% rest of the world 4% Total = 47,912MW south and east asia china 20.3% india 79.3% other 0.4% Total = 3,784MW rest of the world egypt 7% australia 21% Japan 50% new Zealand 8% other 14% Total = 2,012MW Source: BTM Consult Report key factors driving the rapid development of WiNd ENErgy There are three key factors driving the growth of renewable energy and wind energy in particular: recognition of the desire to address human-induced climate change through a reduction of greenhouse gas emissions need to reduce the dependence on, and depletion, of non-renewable resources desire by many countries to diversify the sources of their energy supply. 32

35 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT concern for environment Concerns about the environment and the threat of global warming continue to play an increasingly important role in global politics. Many governments around the world have, to various extents, committed to the promotion of renewable energy, in many cases, via legislated incentive schemes. These incentives typically include granting special privileges to provide wind farms with priority access into the electricity grid or some form of economic benefit such as a price premium. Some of these incentive schemes are described in Section 4.3. a renewable resource Some of the benefits of wind as a source of energy are: safe inexhaustible clean locally available especially when compared with often held concerns regarding the depletion of traditional non-renewable fuel sources and the environment. security of energy supply Security of energy supply is becoming an increasingly significant issue for many countries, particularly with the level and volatility of fossil fuel prices having increased considerably over the past three years. With expectations that the long term global demand for energy will outstrip supply, countries which rely significantly on imported sources of energy (eg. Spain) view the contribution of wind energy generated on home ground to be of national strategic importance. For many countries, when compared to traditional energy fuels (such as coal or gas), wind energy could be one of the largest energy resources available in their own territory. For example, in europe, the exploitable onshore wind resources available for the eu-25 is conservatively estimated at 600,000 GWh and the offshore wind resource at up to 3,000,000 GWh which in aggregate is estimated to exceed the entire electricity consumption for the eu-15. Wind energy as a solution Wind energy is recognised as a cost competitive and large scale renewable energy source in many countries. In response, many countries have introduced legislated programmes to encourage and promote renewable energy. These are outlined in further detail in Section 4.3. Technological improvements and economies of scale resulting from a growth in the volumes of wind turbines being produced has reduced the cost of producing one kilowatt hour of electricity from wind by 80% over the last 25 years. Cost reductions are expected to continue at a rate of 3% to 5% per annum on average, which is likely to make wind energy increasingly cost competitive when compared with electricity sourced from traditional fuels. 33

36 04 GLOBAL WIND INDUSTRY 4.3 legislated programmes for WiNd ENErgy rationale Wind energy is becoming more cost competitive when compared with traditional fuel based generation. The long term unit cost of building a new wind farm is still significantly more expensive than the cost of building a new fossil fuel based power generation facility with equivalent output. However this comparison ignores the very different environmental attributes of the two options. Many governments around the world are committed to reducing greenhouse gas emissions in order to address their potential impact on climate change. To facilitate this, many governments have implemented legislation to provide renewable energy generators, such as wind farms, with the mechanisms necessary to ensure the continued development of renewable energy sources. These government programmes typically include granting special privileges to provide wind farms with priority access into the electricity grid and/or some form of economic benefit such as a price premium. In addition to individually legislated incentive schemes, countries are also working together to develop internationally based incentives and emissions trading systems that will provide further support to the development of renewable energy. These include the International emissions Trading mechanism contemplated under the kyoto Protocol and the emission Trading System implemented by the european Union. While these trading markets are at an early stage of development, they underscore a global trend which recognises the importance of renewable energy sources such as wind energy. It is yet to be determined how international measures such as the kyoto Protocol will interact with legislated schemes already operating in individual countries and therefore how they will contribute to the revenue mix for wind farms. Kyoto Protocol and Emission Trading Scheme The kyoto Protocol came into force in signatory nations on 16 February Some 141 countries, accounting for 55% of the world s greenhouse gas emissions, have ratified the treaty. The US, Australia, China and Brazil are not participants in the treaty. Under the kyoto Protocol, participants pledge by 2012 to cut greenhouse gas emissions (from the level of emissions in 1990) from the industrialised world as a whole by 5.2%. The kyoto Protocol includes three market-based methods known as the kyoto Mechanisms that allow countries to earn or buy credits outside their borders: The Clean Development Mechanism ( CDM ): contemplates credits being earned by investing in emission reduction projects in developing countries. Joint Implementation ( JI ): envisages certified emission reductions credits ( CeR s) being earned by investing in emission reduction projects in developed countries that have adopted a kyoto target. International emissions Trading ( IeT ): to permit developed countries that have adopted a kyoto target to buy and sell emission reduction units ( eru s) amongst themselves. One example of an emission trading scheme based on the principles behind the kyoto Mechanisms is the eu emission Trading Scheme which was created by the eu on 1 January Under the eu emission Trading Scheme, renewable energy projects such as wind farms located in countries participating in the kyoto Protocol are classified as emission reduction projects and will earn CeRs or eru equivalents which can be sold through the eu emission Trading Scheme. However, the scheme is at an early stage of implementation and details of how the scheme may interact with the established national incentive systems in the eu are not yet determined. different legislated incentive systems In general, there are two main types of legislated mechanisms. A third important scheme, which is a variant of the fixed quantity system, is the Production Tax Credit: Fixed price system adopted in countries such as Denmark, Germany and Spain Fixed quantity system adopted in countries such as the United kingdom and Australia and in some states in the US Production Tax Credit adopted in the United States of America at a federal level 34

37 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Fixed price system Under a fixed price system, wind farms are paid a fixed price (or a fixed premium to the electricity pool price) for every unit of electricity produced, with the extra cost borne by electricity consumers or taxpayers. Fixed quantity system Fixed quantity systems typically involve a decision by governments on the targeted level of renewable electricity to be produced during a certain period, while market forces are left to establish the technology (eg. wind, solar, biomass) and the price. In the Uk, for example, the target level of renewable electricity is set at 10.4% of total electricity sourced by suppliers in the Uk for 2010/11). Production Tax Credit The Production Tax Credit ( ptc ) system is unique to the US and can be viewed as a variant of the fixed price system. It offers tax credits to wind farm owners which are worth approximately US$19 per MWh (CPI adjusted) and are available for the first 10 years of operations. In the case of the US Assets, the PTCs are passed through to Class A Members who can use them to offset taxable income derived from other US based operating businesses. An analysis of the structure of a US Asset and interplay with the PTC system is included in Sections 6.6 and Although the PTC system was due to expire by the end of 2005, a two year extension of the incentive to December 2007 (being the date by which a wind farm must begin operation in order to qualify for the 10 year credit) was included in the energy Policy Act that President Bush signed into law on 8 August Figure provides an overview of the schemes used by various governments and the approximate level of tariffs paid to wind farm owners. While the individual schemes are very different in detail, the table demonstrates the widespread support for the development of the wind energy industry. Figure 4.3.1: Tariffs for wind electricity in selected countries Country Installed Capacity (MW) Tariff (7/MWh) 1 Incentive system Austria Fixed price system Australia Fixed quantity system Denmark 3, Fixed price system France Fixed price system Germany 16, Fixed price system Greece Fixed price system Italy 1, Fixed quantity system Japan Targeted subsidy Netherlands 1, Fixed quantity system Portugal Fixed price system Spain 8, Fixed price system 2 Uk Fixed quantity system USA 6, Production Tax Credit (a federal government regime); fixed quantity system (in some US States) Source: BTM Consult Report euro/aud exchange rate is assumed to be In Spain there is the option for a fixed tariff or market option 3 excludes benefit of tax credit payable under PTC system. 35

38 04 GLOBAL WIND INDUSTRY measure of success A stable legislative framework has contributed to the significant growth in wind energy generation in countries such as Germany and Spain. For example, the electricity Act of 1997 of Spain established the right to: Connect renewable installations to the grid Transfer output from renewable installations to the grid Receive a premium payment in return and is considered to have resulted in installed wind energy capacity in Spain having grown from just over 200MW at the end of 1997 to 8,263MW at the end of WiNd turbine technology Wind turbine technology has improved considerably over recent years with significant increases in wind turbine generation capacity and improved efficiency in capturing energy as a result of taller turbines in better locations with enhanced mechanical components. Multiple types and sizes of turbines are now available to suit a wide range of wind resource characteristics and landscapes. harnessing wind energy and turning it into electricity Wind energy is captured and turned into electricity by a wind turbine. The rotors (or blades) of a modern wind turbine typically consist of three blades. The energy captured by the blades steadily rotating is transferred to an electrical generator. The generator, together with a gearbox, transformer and other control equipment, is housed in what is known as the nacelle of the turbine, as shown in figure In current day turbine designs, mechanical noise has been practically eliminated and aerodynamic noise has been vastly reduced. Figure 4.1.1: Wind turbine components A B C Turbine Components A B C D Blades Hub Nacelle Tower D 36

39 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Although a wind turbine is designed to operate continuously across a range of wind speeds, it does not always generate electricity at its rated capacity (e.g. a 1.65 MW turbine has a rated capacity of 1.65MW while its actual generation of electricity at any given time may be less than 1.65MW). A wind turbine normally does not generate electricity if the wind speed is below a certain level, the cut-in speed. As wind speed increases, the wind turbine will gradually increase its electricity output until it reaches its rated capacity. When the wind speed rises to a certain threshold, the cut-out speed, the wind turbine will shut down in order to protect itself from the forces exerted by high wind conditions. This output characteristic is diagrammatically illustrated in Figure and is called the Power Curve. Figure 4.4.1: Powercurve of NM MW wind turbine (used at the Alinta Wind Farm) 2,000 1,500 1,000 output power (kw) average wind speed (m/s) development A modern wind turbine is designed to generate high quality, network compatible electricity for more than 20 years, with remote monitoring and relatively low maintenance. There have been three major trends in the development of wind turbines in recent years: Larger capacity and taller turbines Increase in individual turbine power output capacity over the last 25 years, from 30 kw machines in 1980 to prototypes of 5,000 kw machines in Increased efficiency An overall efficiency increase of 2-3% annually over the last 15 years Investment costs have decreased Significant technological developments including size, together with economies of scale in production, have reduced the cost of wind energy generation by approximately 80% over the past 25 years. Currently design efforts are focused on addressing grid compatibility, further improvements to acoustic performance and the emerging offshore market. 37

40 04 GLOBAL WIND INDUSTRY Figure Growth in Size of Commercial Wind Turbines Rated Power 30kW 80kW 250kW 600kW 1,500kW 5,000kW (Offshore) Rotor 15m 20m 30m 46m 70m 115m Hub Height 30m 40m 50m 78m 100m 90m Yield p.a. 35,000kWh 95,000kWh 400,000kWh 1,250,000kWh 3,500,000kWh C.17,000,000kWh Source: German Wind energy Association construction and operation of wind farms Construction procedures for wind farms have progressed significantly since the early commercial projects of the 1980s. As the wind energy industry has matured, manufacturers and construction companies have designed equipment and modified construction techniques specifically to suit the installation of wind turbines. The pictures in Figure show typical stages in the construction of land-based wind turbines. The first stage involves creating the base for the tower, the second stage involves erecting the tower, and the third stage involves lifting the nacelle and the rotor onto the top of the tower. 38

41 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Figure 4.4.3: Typical construction procedures for land based wind turbines erecting tower Nacelle transportation Lifting nacelle Rotor lifting Completed wind farm Operation of wind farms typically involves remote monitoring of largely automated control systems, undertaking regular inspections and scheduled maintenance and general administration. Aside from incurring wind turbine related operating costs, a wind farm will also typically incur other ongoing costs such as land rent, insurance costs, and ongoing network connection charges. 4.5 outlook for the global WiNd ENErgy industry overview Much of the increase in renewable energy consumption in the industrialised world is projected to be produced by renewable energy sources other than hydro power and in particular to be produced by wind. BTM Consult, a leading independent consultancy specialising in renewable energy, forecasts that the wind energy sector will grow at 19.6% pa until They forecast that a total of 117,142MW of wind energy capacity will be installed by the end of 2009, an increase of 144% from the 47,912 MW of installed capacity at the end of Forecasts are generally based on analysis of the market conditions for wind energy in individual countries. The more important factors include: Recent market growth Assessment of available wind resources and how they can be used Natural energy plans and government support for renewable energy Technological development of turbines commercially available Assessment for comparative purposes of patterns of development in like markets Information about the large projects in the planning or preparation phase Increased involvement in the industry by large companies and utilities 39

42 04 GLOBAL WIND INDUSTRY Figure 4.5.1: Global cumulative installed capacity and annual additional capacity (MW) between (historical and forecast) mw 140,000 world europe america asia rest of world additional annual capacity mw 20, ,000 18, ,000 16,000 12,000 cumulative installed capacity 80,000 60,000 40,000 20, ,000 8,000 6,000 4,000 2,000 0 additional annual capacity Source: BTM Consult Report Note: the scale on the right hand vertical axis applies to the orange line and the scale on the left hand axis applies to the coloured sections europe is forecast to continue to be the leading wind energy continent, accounting for 64% of the cumulative installed global capacity up to Germany, Spain, the Uk, Portugal, France and Italy are expected to account for 72% of new european installations during this period. The USA, India, China, Canada, Australia and Japan are expected to be the major non-european contributors to the growth in installed capacity through to The main impetus for this expected growth is the need to meet increasing legislated renewable energy targets established by countries around the world. In addition, the repowering of older turbines and the development of offshore wind farms is expected to expand the wind energy sector. Consolidation within the industry may also be seen as ownership shifts away from individuals and smaller developers. renewable energy targets for key markets Europe europe is the global leader in the commercialisation of wind energy. europe has 72.8% of the global installed capacity and is responsible for manufacturing approximately 80% of all wind turbines. The catalyst for this focus in developing wind energy is europe s desire to address its dependence on energy sourced from outside europe and the aggressive targets set for the promotion of renewable energy. europe imports 50% of its energy requirements and if no other measures are taken this figure is expected to increase. The eu has set national targets for the contribution of electricity from renewable energy sources as a proportion of gross consumption. Figure summarises the targets set for individual european countries for national electricity consumption from renewable energy sources. The overall european target is to increase the share of electricity from renewable energy sources from 13.9% in 1997 to 22% in

43 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Figure 4.5.2: reference values for national targets for contribution of electricity from renewable energy sources ReS e *GWh 1997** ReS-e % 1997*** ReS-e % 2010** Austria 39, Belgium Denmark 3, Finland 19, France 66, Germany 24, Greece 3, Ireland Italy 46, Luxembourg Netherlands 3, Portugal 14, Spain 37, Sweden 72, Uk 7, european Community (comprising 15 members) 338, % 22% * ReS-e means Renewable energy Sources - electricity ** National production of ReS-e in 1997 *** The percentage contributions of ReS-e are based on the national production of ReS-e divided by the gross national electricity consumption (1997: actual and 2010: forecast). Source: Directive 2001/77/eC of the european Parliament of 27 September 2001 North America The US and Canadian governments have been active participants in the growth of the wind energy sector. The US has the PTC program at the federal government level and for some 18 states, a state based renewable portfolio standard ( RPS ) applies. The PTC program offers an incentive of US$19 per MWh (CPI adjusted) for electricity generated from renewable sources during the first 10 years of operation of the project. Although the PTC program was due to expire by the end of 2005, a two year extension of the incentive to December 2007 (being the date by which a wind farm must begin operation in order to qualify for the 10 year credit) is included in the energy Policy Act that President Bush signed into law on 8 August In addition, state based RPS programs are based on a fixed quantity system whereby a renewable energy generator such as a wind farm is issued with renewable energy certificates which can be onsold to energy retailers who are required to deliver them to a state based regulator. 41

44 04 GLOBAL WIND INDUSTRY Figure illustrates renewable electricity standards (targets) adopted by some states in the US. Figure 4.5.3: Renewable Electricity Standards in US states as of January 27, 2005 * Includes requirements adopted in 1994 and 2003 for one utility, Xcel energy. The Canadian federal government has implemented a wind energy specific legislated incentive system called the Wind Power Production Incentive ( WPPI ). The stated wind energy capacity target has recently been revised upward from 1,000MW to 4,000MW. The WPPI consists of a subsidy of C$10 per MWh over 10 years. In addition to this, almost all of the Canadian provinces have set targets and established schemes to promote the development of renewable energy generation. Asia Pacific Policies regarding both renewable energy and wind energy vary significantly across Asia Pacific. India, China, Japan, Australia and New Zealand are the key countries promoting the development of renewable energy. In Australia, electricity retailers and other wholesale users are required by legislation to meet the Mandatory Renewable energy Target, or MReT, by surrendering a pre-determined number of renewable energy certificates or ReCs per annum. The ReCs are created by renewable energy generators, such as wind farms. The intended purpose of MReT is to encourage renewable energy production to increase by 9,500 GWh per annum by 2010, and to maintain that increased level of production until Failure by a retailer or user to meet its designated share of the MReT results in it being liable for a non-tax deductible penalty of $40 per MWh calculated on the shortfall. repowering Repowering is the name given to the replacement of older turbines with newer, larger capacity, taller and more efficient models. Repowering can improve utilisation of the wind resource. It may also be easier to repower an existing wind farm (from a development and permit perspective) than to undertake a greenfield project. The wind energy industry is still relatively young and it is only in the past few years that the oldest (and typically smallest capacity) wind turbines have reached an age where repowering of these wind farms has become viable. The first markets to seriously consider repowering are Germany, Denmark and the US. These countries were pioneers in the industry and therefore tend to have older wind farms in service. Repowering schemes in Denmark have been successful in replacing hundreds of small turbines with new multi-mw-class turbines. The total number of turbines in Denmark has actually reduced since 2000, whilst the aggregate installed capacity has increased. 42

45 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Based on previous recorded installations in Denmark, Germany and the US dating back to 1985 it has been predicted that the total potential market for repowering could be in the order of 2,500 to 8,700MW of new installed capacity over the next ten years, and that repowering will in future contribute a significant share of the wind energy market growth. offshore Wind farms The market for offshore wind energy projects is still in its infancy with only 589MW of installed capacity at the end of earlier predictions of stronger growth in this sector have been moderated due to delays experienced in obtaining approvals and financing for initial offshore projects. However, if the offshore sector grows as market experts predict, it should represent an important segment of the wind energy market, particularly for large scale wind farms using very large turbines in waters off the shores of Germany and the Uk. industry consolidation Many wind farm development opportunities and operating wind farms in europe have been sponsored by individuals and smaller companies taking advantage of the relatively low barriers to entry into the market for small individual wind energy projects. Rapid development of the industry and the increasing scale of wind farm developments have led to the more recent involvement of larger companies in the wind energy sector. 43

46 05 overview of bbwp 5.1 introduction Since its establishment in June 2003 and subject to the successful completion of the Offer and the US Acquisition, BBWP will have successfully grown from a single asset private investment vehicle to a listed fund with a market capitalisation of approximately A$657 million and a global wind energy asset portfolio diversified across europe, North America and Australia. As a result of the growth of BBWP and its increasing capital needs, the Founding Investors have decided to seek a listing of BBWP on ASX. BBWP offers a unique opportunity to invest in a vehicle of significant scale focused solely on the growing global wind energy generation sector. 5.2 transaction mechanics The following sets out a summary of the key events relating to the Australian Acquisitions, the US Acquisition and the Olivo Acquisition as well as the stapling of BBWPB to create BBWP s tripled stapled structure. us acquisition BBWP will acquire an economic interest equal to 80% (64% in the case of Caprock) of Babcock & Brown s investment in a portfolio of 5 wind farms in the US. BBWP will acquire an 80% ownership interest in BBWPUS, the entity under which the 5 wind farms have been consolidated by the US Vendor, BBWe. BBWe will retain the remaining 20% ownership interest in BBWPUS and BBIM will be the managing member but hold no economic interest in BBWPUS. BBWPUS owns interests in wholly owned subsidiaries (and an 80% subsidiary in the case of Caprock) which in turn hold Class B Membership interests in 5 individual limited liability companies which each own and operate a wind farm. BBWP will use part of the proceeds of the Offer to fund its obligation to pay the purchase price of US$65,650,000 under the US Acquisition Agreement as consideration for the 80% economic interest in BBWPUS referred to above. The purchase price has been agreed between the seller and the buyer and is within the range of valuations determined by an independent valuer. In the event that a material adverse event occurs in respect of one or more of the wind farms prior to completion of the US Acquisition, BBWP may elect not to acquire that or those wind farm(s) but nonetheless to acquire the remaining wind farm(s). BBWP will enter into a limited liability company agreement in respect of BBWPUS with BBWe, as owner of the remaining 20% economic interest, and with BBIM as managing member. BBWP will grant the US Guarantees. The structure of the investment in BBWPUS and its investments are further described in Sections 6.6 and The agreements referred to in this Section are summarised in detail in Section olivo acquisition Only 3 of the 6 wind farms in the Olivo Portfolio have been acquired by BBWP to date. The remaining 3 el Redondal, el Sardon and Serra da Loba are either completed and awaiting the issuance of permits or are under construction. These remaining 3 wind farms are expected to be acquired by BBWP by the end of It is the current intention to use existing cash reserves and drawings under the Debt Facility to fund the purchase price of these Spanish wind farms. australian acquisitions The Australian Acquisitions by BBWP occurred prior to the date of this Offer Document. Consideration for both of these acquisitions was satisfied by the issue of BBWPL Shares and Units: lb2 acquisition BBWPL has entered into an acquisition and development agreement pursuant to which the LB2 Vendors are obliged to take steps to develop LB2 to the point of LB2 Financial Close. BBWP has agreed to acquire LB2 Co and these rights for a purchase price of A$20 million ( lb2 purchase price ). LB2 Financial Close has yet to be achieved and the LB2 Vendors are under an obligation to achieve that milestone within 12 months of the date of the LB2 Acquisition Agreement (which may under certain circumstances be extended). The LB2 Purchase Price is subject to a purchase price adjustment which may arise at LB2 Financial Close if certain variables have changed from the base case valuation agreed pursuant to the LB2 Acquisition Agreement. BBWP has satisfied its obligation to pay the LB2 Purchase Price by issuing 7,142,857 BBWPL Shares and 7,142,857 Units ( lb2 consideration securities ) to each of the LB2 Vendors. The LB2 Consideration Securities are subject to a restriction and holding lock arrangement until LB2 Financial Close. The LB2 Acquisition Agreement is described in Section

47 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Walkaway acquisition Minority Interest Holders in the Alinta Wind Farm have sold to BBWP their aggregate indirect equity interests in Walkaway Wind Power Pty Ltd ( Walkaway ) for a purchase price of A$48 million ( Walkaway purchase price ). While the Walkaway Purchase Price has been agreed between the sellers and the buyer, an independent valuation also underpins the price that has been agreed. BBWP satisfied its obligation to pay the Walkaway Purchase Price by issuing 34,285,712 BBWPL Shares and Units in aggregate to the Minority Interest Holders ( Walkaway purchase price securities ). As a result of this transaction, BBWP owns 100% of the equity in Walkaway which is constructing the Alinta Wind Farm. The Walkaway Acquisition Agreement is described in Section BBWpB On 14 September 2005 the Responsible entity made an in specie distribution of shares in BBWPB to the then Unitholders of BBWPT so that, as of that date, in addition to holding a BBWPL Share stapled to a Unit, they also held a BBWPB Share stapled to that BBWPL Share and Unit. 5.3 management of BBWp BBWP is managed by BBIM, a subsidiary of Babcock & Brown, under 25 year Management Service Agreements with each of BBWPL, BBWPB and BBWPS (as responsible entity of BBWPT) (each a relevant BBWP entity). The Management Services Agreements are described in Section As Responsible entity of BBWPT, BBWPS will continue to be responsible for the management and operation of BBWPT and will be responsible for the protection of Securityholders interests (to the extent they hold Units). Responsibility for corporate governance and the internal workings of each BBWP entity will rest with the respective Boards. Under the terms of the Management Services Agreements, BBIM will make recommendations to the relevant BBWP entity in respect of prospective investments and will provide management services to BBWP. BBIM will have appropriate delegated authority from the relevant BBWP entity to do all things necessary or incidental to perform the services, including carrying out investment transactions within pre-approved limits. In performing the services, BBIM must comply with the then adopted investment strategy of BBWP, the Stapling Deed, and any written policy and directions of the relevant BBWP entity which do not contravene any law or the relevant Management Services Agreement and are not inconsistent with the investment strategy of BBWP or the Stapling Deed. BBIM will be entitled to an amount per annum in respect of expenses and to a Base Fee and an Incentive Fee. The expense amount is initially set at $6 million per annum payable by BBWPL. Throughout the term of the Management Services Agreements, this amount increases by at least the CPI and may be increased by approval of the relevant Board after certain periods of time (which do not exceed 5 years) to reflect increased actual or estimated expenses. The Base Fee is split between the three stapled entities and the Incentive Fee is payable only by BBWPL. More details on the fees payable are set out in Section 8. As managing member of BBWPUS, BBIM will have overall responsibility for managing the affairs of BBWPUS through US based executives, including its investments in its subsidiaries, subject to approval of members on certain fundamental matters. As managing member of BBWP (US) LLC, BBIM will have overall responsibility for managing the affairs of BBWP (US) LLC through US based executives. 5.4 BaBcock & BroWN Babcock & Brown Babcock & Brown is a global investment and advisory firm with longstanding capabilities in the creation, syndication and management of a broad range of investments. Babcock & Brown was founded in 1977 and is listed on ASX. Babcock & Brown operates from 18 offices across Australia, the United States, europe, Asia and Africa and has more than 550 employees worldwide. Babcock & Brown has five operating divisions being real estate, infrastructure and project finance, operating leasing, structured finance and corporate finance. 45

48 05 OVeRVIeW OF BBWP Babcock & Brown listed funds The following entities are managed by Babcock & Brown Group companies and are listed on ASX: Babcock & Brown Infrastructure (ASX: BBI) (previously named Prime Infrastructure) Babcock & Brown Capital Limited (ASX: BCMCA) Babcock & Brown Japan Property Trust (ASX: BJT) Babcock & Brown environmental Investments Limited (ASX: BeI) A diversified infrastructure investment fund A private equity investment company A property trust investing in Japan An environmental investment business Wind energy sector experience Babcock & Brown has a long track record in the wind energy sector. Babcock & Brown has arranged financing for over 3,000 MW of wind energy projects and companies over the last 16 years, with an estimated value over US$3 billion. Babcock & Brown is active globally as an investor, developer and adviser in the wind energy generation sector and has strong relationships with a number of participants in the wind energy industry including General electric, Vestas and Gamesa. Figure 5.4: Illustrations of Babcock & Brown s recent experience relevant to the Initial Portfolio sweetwater-a 400mw multi-stage wind power project in texas 2003 american wind energy association financier of the year olivo portfolio 2005 euromoney renewable energy awards equity provider of the year 80.5 mw stage 1 of lake bonney wind farm south australia co-developer, financial adviser & initial investor 1st limited recourse financing of a wind farm in australia financial advisory services Babcock & Brown is highly experienced in originating, structuring, and advising on wind energy generation transactions. For example, Babcock & Brown was awarded the 2005 euromoney Renewable energy equity Provider of the Year and the 2003 American Wind energy Association Financier of the Year for its roles on certain wind farm projects in europe and the US respectively. In June 2003, Babcock & Brown arranged the first limited recourse financing of a wind farm in Australia the Lake Bonney Stage 1 wind farm. To take advantage of the investment advisory and structuring skills of Babcock & Brown, BBWP has appointed Babcock & Brown as its exclusive financial adviser in relation to proposed investments by BBWP. This arrangement is further described in Section and fees payable for such services are referred to in Section 8. 46

49 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT interaction with Babcock & Brown and other Babcock & Brown funds Given its investment strategy, BBWP is not expected to compete directly for investment opportunities with any existing funds managed by Babcock & Brown. Babcock & Brown Infrastructure, an ASX listed infrastructure fund managed by Babcock & Brown, is a significant Founding Investor in BBWP. After Allotment, Babcock & Brown Infrastructure will hold approximately 17.5% of the Stapled Securities on issue (based on the Offer). It currently intends to remain a long term strategic investor in BBWP. In the future, Babcock & Brown may establish new funds with mandates which could result in those funds targeting the same investment opportunities as BBWP. It is possible that those funds will co-invest with BBWP in such opportunities but those funds may not be under any obligation to do so. As part of its current business, Babcock & Brown acts as financial adviser or developer of new wind energy projects and makes investments as principal in such projects. except as described in the Framework Agreements, there are no formal arrangements or obligations requiring Babcock & Brown to sell these investments to BBWP. Babcock & Brown and associated entities may invest and hold interests in new wind energy projects and may sell those interests to third parties other than BBWP. Babcock & Brown (through US subsidiaries) will co-invest with BBWP in the US Assets, retaining a 20% interest in BBWPUS upon completion of the US Acquisition. BBWe, the US Vendor, will have pre-emptive rights in respect of those investments acquired by BBWP pursuant to the US Acquisition (BBWP will also have pre-emptive rights). A description of the pre-emptive rights is set out in the summary of the terms of the BBWPUS LLC Agreement between BBWP, BBWe and BBIM in Section investment opportunities general BBWP believes that it is well placed to take advantage of the strong underlying growth potential of the global wind energy industry and any consequential consolidation of that industry. BBWP believes investment opportunities are likely to come from four primary sources: Babcock & Brown: global opportunities developed directly by Babcock & Brown s project development team which may be offered to BBWP strategic alliances of Babcock & Brown or BBWP: opportunities may arise from time to time through strategic alliances between industry participants and BBWP or Babcock & Brown private trade sales: the sale of wind energy generation assets on an exclusive or preferred basis public tenders: opportunities where tenders relating to the sale of wind energy generation assets are invited from a number of industry participants BBWP may consider investing in businesses which are closely related to wind energy generation assets where these complement the BBWP Portfolio or offer strategic advantage. framework agreements key to BBWP s medium term growth strategy are the three Framework Agreements between BBWP and Babcock & Brown in relation to a pipeline of future opportunities in the US, Spain and Germany. 47

50 05 OVeRVIeW OF BBWP us framework agreement BBWP (US) LLC, a subsidiary of BBWPL, has entered into an agreement with BBWe to acquire an economic interest equal to 62.5% of Babcock & Brown s Class B Membership interests in a further 4 wind farms located in the US subject to certain conditions being satisfied. BBWP (US) LLC and BBWe have also agreed to negotiate in good faith for the acquisition by BBWP (US) LLC of the remaining interest. The estimated total gross installed capacity of these wind farms is 216MW. The agreement contemplates that BBWP would acquire an interest in each of these wind farm assets shortly after the start of operations (expected to be in the first half of 2006). spanish framework assets BBWPL has entered into a Framework Agreement with B&B Uk under which B&B Uk will give to BBWPL rights and obligations corresponding to rights and obligations under an agreement between B&B Uk and Gamesa energía S.A. ( gamesa ) to acquire from Gamesa wind farms in Spain with a total installed capacity of up to 450MW over the next 3 years subject to certain conditions being satisfied. Gamesa is a Spanish listed company with a global network of offices that is one of the world s largest manufacturers and suppliers of technologically advanced products and services in the renewable energy sector. german framework agreement BBWPL has entered into a Framework Agreement with B&B Germany under which B&B Germany will pass through to BBWPL rights under an arrangement B&B Germany has in place with Renerco Renewable energy Concepts AG ( renerco ). Under this Framework Agreement, BBWPL will benefit from rights of first refusal in relation to the acquisition of wind farms in Germany developed or sourced by Renerco in the period to the end of Renerco is a German company that provides development and operational services for renewable energy projects, including wind energy, in Germany and in other european countries. See Section 12.4 for a summary of the Framework Agreements. 48

51 06 overview of the bbwp portfolio 6.1 initial portfolio After giving effect to the Offer, the US Acquisition and the Olivo Acquisition, BBWP will have investments in 15 wind farms located in the US, europe and Australia. A summary of the wind farms in the Initial Portfolio is set out in Figure 6.1. The Initial Portfolio comprises investments in wind farms with total gross installed capacity of 671.6MW and average per annum production of 2,181 GWh. Figure 6.1: Initial Portfolio Summary Long Term BBWP s Mean energy equity Operations Installed Number of Production 4 Wind Farm Location interest (%) 1 Start Date Capacity (MW) Turbines (GWH pa) Australia Alinta Western Australia 100% December /NeG Micon (estimated) MW Lake Bonney South Australia 100% February / Vestas Stage MW europe Olivo Portfolio 100% 2 Sierra del Trigo Spain Jaen January / Gamesa kW La Muela Norte Spain Zaragoza August / Gamesa kW el Redondal Spain Leon January / Gamesa kW Serra da Loba Spain Galicia October / Gamesa 99.9 (estimated) 3 2MW La Plata Spain C. La Mancha June / Gamesa kW el Sardon Spain Andalucia November / Gamesa 47.9 (estimated) 3 850kW Niederrhein 99% Wachtendonk Germany October / Nordex 23.7 Northrhine -Westphalia (estimated) 1.5MW Bocholt-Liedern Germany October / Nordex 13.3 Northrhine -Westphalia (estimated) 1.5MW North America Sweetwater 1 USA Texas 40% December / Ge MW Sweetwater 2 USA Texas 40% February / Ge MW Caprock USA New Mexico 64% December / Mitsubishi /May MW Blue Canyon USA Oklahoma 40% December / Vestas MW Combine Hills USA Oregon 40% December / Mitsubishi MW total mw 546 turbines 2181 gwh p.a. 49

52 06 OVeRVIeW OF THe BBWP PORTFOLIO Notes: 1 Percentages for North America constitute percentage ownership of Class B stock of project entity only i.e. 80% of 50% or in the case of Caprock 80% of 80% 2 Wind farms are not acquired by BBWP until commencement of operations and receipt of permits/approvals 3 Under construction 4 estimates produced by expert advisers. Long Term Mean energy Production is explained in Section The current grid connection limits the capacity to 10MW. A new grid connection is under construction and has to be completed by the end of September 2005 otherwise Gamesa must compensate Olivento for the loss of revenues due to limited capacity. 6.2 key features of the initial portfolio The Initial Portfolio s key features include: New, high quality assets: All of the Wind Farm Assets are recently constructed, under construction or about to commence construction. each of the Wind Farm Assets uses wind turbines developed by leading manufacturers with construction undertaken by leading contractors (often the manufacturer). attractive offtake arrangements: The majority of Wind Farm Assets are subject to long-term offtake arrangements with established utilities. The Olivo wind farms are the only exception because it is currently considered more attractive to sell the electricity produced into the electricity market pool at a price equal to the spot electricity price plus a legislated premium plus bonus. The premium is determined annually in accordance with formulae specified under Spanish law. Under Spanish law, once a year, the Olivo wind farms have the option to revert to a fixed tariff arrangement. The sale of electricity (and related certificates) under a contract or a legislative regime provides a degree of certainty as to the price receivable for the electricity produced by a Wind Farm Asset. predictable operating costs: A large proportion of the operating costs of each Wind Farm Asset are based on medium term O&M contracts with experienced operators (such as leading turbine manufacturers and experienced wind farm operators) from the commencement of operations. As the O&M contracts generally provide for fixed costs subject to annual escalation, these costs are considered to be largely predictable. Benefits of diversification: The Initial Portfolio is diversified across a number of wind farms located in four countries on three continents. This provides the benefits of geographic diversification, including benefits relating to wind resource, regulatory and market-related risks. Contractors to the Wind Farm Assets are made up of a number of leading turbine suppliers, operators and customers. As a consequence, key risks related to a Wind Farm Asset are substantially diversified and thus reduced at the BBWP level. debt financing: each of the Wind Farm Assets has been funded with long term limited recourse secured bank debt (other than the US Assets where the long-term funding is provided solely by equity). Security has been granted in favour of the banks over the specific assets which those banks are financing. Long-term interest rate hedging is in place with respect to the debt under these financings in accordance with BBWP s hedging policy. land tenure: Long-term leases or other land tenure arrangements are held by entities controlled by BBWP which own the rights to operate the wind farm. In many cases the term of the leases is in excess of 25 years with a number having an option to extend. Wind resource: The estimated energy production of each wind farm has been the subject of studies undertaken by experts. Wind and energy assessments have been prepared to produce a forecast of the Long Term Mean energy Production for each wind farm in the Initial Portfolio. See Section 6.4 for an explanation of Wind Resource. legislative framework: each of the wind farms in the Initial Portfolio benefits from the legislative framework in which it is located: 50

53 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Australia Spain Germany United States of America The Mandatory Renewable energy Target ( MReT ) has been set by the Australian federal government to encourage renewable energy production to increase by an additional 9,500 GWh p.a. by 2010 and then to maintain that level of renewable energy generation until The MReT scheme provides for the sale of environmental credits in the form of a renewable energy certificate or ReC. A ReC is an electronic record corresponding to 1 MWh of electricity generated from approved renewable fuels, including wind energy. Under the MReT scheme electricity wholesalers and retailers are required to surrender a pre-determined number of ReCs each year otherwise they are currently liable to pay a penalty of $40 per MWh. In addition to the Commonwealth regulatory regime, ACT and NSW have emissions trading schemes which may be available to wind farm assets in other states, including South Australia. The wind energy industry in Spain benefits from a developed legal framework which has evolved over the last eight years and provides a stable basis upon which wind farm developers and operators can rely for their business and investment decisions. The legal framework created through a number of Royal Decrees encourages new investments in renewable energies by placing them under a Special Regime. The electricity Act of 1997 establishes the right to: Connect renewable installations to the grid Transfer output from renewable installations to the grid Receive a premium payment in return The current regulations which expand on the electricity Act of 1997 were put in place by the Spanish government in March 2004 under the Royal Decree 436/2004. The Spanish regulatory regime allows wind generators to choose each year between a regulated fixed tariff which is benchmarked to between 80%-90% of the average reference price for end users of electricity in Spain or a market option which is set at a legislated premium plus bonus to the (variable) electricity pool price. Under the regulated fixed tariff option the wind farm sells directly to the local utility at a fixed tariff calculated at the beginning of the year as a sliding percentage of the average reference price. This percentage varies depending on the age and capacity of the wind farm from 90% at commissioning declining to 85% after 5 years and 80% after 15 years. The tariff is constant throughout each year. The market option allows the generator to sell electricity to the pool and receive a legislated premium plus bonus to the market price. The premium is determined annually in accordance with formulae specified under Spanish law. In April 2004, an amendment to the Renewable energy Sources Act ( EEg ) was passed in order to provide further impetus to the German renewable energy sector. Under the eeg, electricity produced by wind farms will be paid a fixed tariff for a period of 20 years (plus the year of commissioning). In general, two different rates will apply during the tariff period. Renewable energy generating facilities commissioned after the act came into force in 2004 will receive an initial rate per kwh for at least five years, followed by a different rate per kwh during the remaining period. Depending on the location of the renewable energy generating facility, the period during which the initial higher rates will be paid may be extended (eg in areas where the wind yield is low). The Production Tax Credit or PTC system is a system promoted by the federal government of the United States. It is unique to the US and can be viewed as a variant of the fixed price system. It offers tax credits to wind farm owners which are worth approximately US$19 per MWh (CPI adjusted) and can be available for the first 10 years of operations. In the case of the US Assets, the PTCs are passed through to Class A Members who can use them to offset taxable income derived from other US based operating businesses. Although the PTC system was due to expire at the end of 2005, a two year extension of the incentive to December 2007 (being the date by which a wind farm must begin operation in order to qualify for the 10 year credit) is included in the energy Policy Act that President Bush signed into law on 8 August Some states in the US have also adopted fixed quantity systems (see Figure in Chapter 4). 51

54 06 OVeRVIeW OF THe BBWP PORTFOLIO These are some of the benefits of the Initial Portfolio. There are also risks associated with in an investment in BBWP and some of these are set out in Section financial contribution The largest contributor to ebitda for the Financial Year ended 30 June 2007 is forecast to be the Olivo Porfolio, followed by the Alinta Wind Farm. BBWP expects the relative financial contribution of the wind farm assets to change over time as the BBWP Portfolio expands and diversifies further through a growth in the number of assets in the US, europe and elsewhere, such that each individual Wind Farm Asset in the Initial Portfolio is expected to contribute a lower proportion of BBWP s earnings in the future. As it is not BBWP s current intention to adopt any policy either limiting the extent of or requiring a particular degree of diversification, there can be no assurance that as a result of future acquisitions or dispositions or industry consolidations that BBWP s portfolio will not become more concentrated on a country or region or industry participant (such as an offtaker). For more detail on the financial information, see Section 9 and in particular the assumptions and sensitivities in Sections 9.8 and 9.11 respectively. Forecast EBITDA by region in 2007 Australia 41% Europe 48% US 11% Forecast EBITDA by wind farm project in 2007 Lake Bonney 1 13% Alinta 28% Olivo 43% Niederrhein 5% US 11% The pie charts above are based on forecast 2007 ebitda (before corporate overheads and fees). See Section 9.8 for assumptions underlying these forecasts. For the US Assets the figures are BBWP s share of cash distributions from these investments rather than the equity accounted earnings from these investments 6.4 WiNd resource and prediction of ENErgy production Wind resource Wind is the fuel for wind energy generators; the generators are the wind turbines. Wind Resource is the term used to descibe the measure of energy potentially available from the wind in a particular location. Commercial evaluation of the economics of a potential wind farm requires accurate and reliable estimates of the wind resource, in particular, the wind speed and its variability over time. Typically this requires wind measurements to be undertaken on the potential wind farm site and then analysis of this wind data and reference to off-site wind data to establish the estimated long term wind regime. Once the wind speed and variability have been analysed, modelling and investigation of the environmental and land constraints of the proposed site is carried out to provide a prediction of the potential wind farm s expected energy production over its lifetime. 52

55 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Wind assessment and Energy prediction process A typical wind assessment and energy prediction process involves determining: Wind Speed at Wind Turbine Hub Height: this establishes the long-term (typically 20 years) wind characteristics at a particular point or points on the proposed site Gross energy Output of the Wind Farm: this optimises the wind characteristics with the site topography and surface cover, turbine profile, wind farm layout, turbulence and air density Net energy Output of the Wind Farm: this takes account of a number of wind farm specific loss factors, including turbine availability, electrical efficiency and interference between wind turbines (Wake Loss) These assessments are undertaken by expert advisers on behalf of the wind farm owner and/or developer. Significant effort is focused on estimating the mean wind speed at a site as this is the single most important factor in determining energy output for that site i.e. the amount of energy produced increases with an increase in the average wind speed and decreases with a decrease in the average wind speed. For example, if the average wind speed increases from 6 m/s to 9 m/s (a 50% increase) the amount of energy produced will typically increase by over 100%. The other important charateristic which determines the energy output of a wind farm is the wind speed variability over time. As an example, the results of analysis of wind speed and its variability undertaken at a wind farm in the Initial Portfolio are illustrated below in Figure Figure 6.4.1: Wind speed distribution for one of BBWP s Wind Farms 6 4 occurrences (%) average wind speed (m/s) Source: An energy Assessment Adviser Having analysed the estimated long-term mean wind speed and its variability, modeling is undertaken with computer programs specifically designed to derive predictions of wind farm energy output and to optimise the wind farm output. The results of this analysis establish the predicted or forecast gross annual Long Term Mean energy Production for the proposed wind farm. 53

56 06 OVeRVIeW OF THe BBWP PORTFOLIO The final step in the energy prediction process is to consider the potential sources of energy loss on a site specific basis. The main loss factors are typically: Wake Loss the impact of each turbine on the output of the other turbines in the wind farm due to the disturbance of wind behind a wind turbine Turbine availability the amount of time a wind turbine is actually functional and not out of order. This is typically warranted by the turbine supplier under the turbine supply contract electrical transmission efficiency Controls within the turbines which cause the turbine to cut-out in high winds Allowing for electricity substation maintenance. Applying these losses to the gross energy output provides the predicted annual Net Long Term Mean energy Production for a wind farm. certainty of predicted Energy production An uncertainty analysis for the predicted energy production of a wind farm is also commonly carried out to provide a range of energy production values with the Long Term Mean energy Production as the central estimate or most probable outcome. The uncertainty analysis is a statistical analysis. The sources of uncertainty derive from the natural variability of certain parameters, especially wind and the uncertainty inherent in data measurement and prediction. Based on research, it is standard practice to consider a relatively small number of key uncertainties with these uncertainties assumed to be normally distributed. This allows energy production levels to be calculated which have a defined Probability of exceedence. Probability of exceedence means the probability that a given level of energy production will be exceeded in any year. For example, P90 is a short form way of describing that there is a 90% probability that a given level of energy production will be exceeded in any year. P50 represents the best estimate of energy production in any year and may be referred to as the long term mean energy production. Figure provides an example of an uncertainty analysis which was carried out for el Redondal, a wind farm in the Olivo Portfolio. energy production levels with a Probability of exceedence of P50, P75 and P90 are calculated. Figure 6.4.2: Probability of Exceedence El Redondal Wind Farm (Olivo Portfolio) Long-Term Mean P75 P90 energy Production (or P50) Net energy (GWh p.a.) These results show that: the most likely level of net energy production for the el Redondal wind farm is 66.5 GWh p.a. in any given year (P50) This level is used in the Directors Forecasts there is a 90% probability that the level of expected output will exceed 57.0 GWh in any given year (P90) the P75 and P90 figures represent a reduction of 7.5% and 14.3% respectively in the energy production 54

57 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT The variation in energy production at the P75 and P90 levels will have a flow on effect on the forecast revenue and ebitda results at each wind farm which may be greater than 7.5% and 14.3% respectively. The financial impact of variability in energy production is presented as part of the sensitivity analysis in Section These percentages vary from wind farm to wind farm and may be higher in some cases than those shown for el Redondal. portfolio Effect As the geographical spread of wind farms in a portfolio increases, the wind speeds and several potential sources of uncertainty become less correlated. The effect of aggregating wind farms into a portfolio, such as BBWP s portfolio, is to smooth out the aggregate annual energy output of the wind farms. Figure illustrates the portfolio effect in the Initial Portfolio (expressed in GWh p.a.): Country Name of Wind Farm P50 P75 P90 Australia Lake Bonney Stage Alinta Spain Sierra de Trigo La Muela Norte el Redondal Serra da Loba La Plata el Sardon Germany Niederrhein Wachtendonk Niederrhein Bocholt-Liedern USA Sweetwater Sweetwater Caprock Blue Canyon Combine Hills individual total 2, , Portfolio 2, , ,059.4 portfolio benefit 2.9% 5.9% Note: the expected output levels are the total gross installed capacity levels of the wind farms in the Initial Portfolio and interests of less than 100% held by BBWP in any of the assets are not represented The expected output generated at the Portfolio P75 level for the Initial Portfolio is 2.9% higher than the sum of the P75 levels for individual wind farm projects in the Initial Portfolio. The expected output generated at the Portfolio P90 for the Initial Portfolio is 5.9% higher than the sum of the P90 levels for individual wind farm projects in the Initial Portfolio. This benefit is expected to become increasingly important to BBWP as its portfolio grows. 6.5 WiNd farm assets The following assets are or will be included in the Initial Portfolio (after completion of the Olivo Acquisition and the US Acquisition). More details on the contracts referred to in this Section 6.5 can be found in Section For an explanation of the energy assessment process, refer to Section 6.4 and for the risks associated, refer to Section

58 06 OVERVIEW OF THE BBWP PORTFOLIO ASIA PACIFIC, AUSTRALIA ALINTA WIND FARM KEY INFORMATION Funding Revenue assurance Customers Construction Australian dollar denominated limited recourse debt provided by a syndicate of banks. All the electricity and renewable energy certificate outputs are sold under long term offtake contracts with terms of 20 years 1 for electricity and 10 years 1 for RECs with an extension option for the REC agreement. Alinta Sales Pty Ltd a wholly owned subsidiary of Alinta Limited (Electricity & RECs) AGL Electricity Limited a wholly owned subsidiary of AGL Limited (RECs only) Fixed price turnkey engineering, procurement and construction contract with NEG Micon (now owned by Vestas) Operation Full commercial operations scheduled to commence in December 2005 Operations and maintenance contract for 5 year term 1 with NEG Micon (now owned by Vestas) Land Regulatory regime Land leases with 25 year 2 tenure with option to extend for 5 years Australian MRET Scheme (see Section 6.2). NSW and ACT greenhouse gas abatement schemes may also apply Note: 1 from the start of operations: December 2005 (estimate) 2 from

59 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT The Alinta Wind Farm is currently under construction and is expected to commence full operations from December 2005 with a total installed capacity of 89.1MW and an expected net energy output of GWh per annum. The Alinta Wind Farm consists of 54 NeG Micon NM MW wind turbines. It is located in mid northwest Western Australia, approximately 30km south east of Geraldton and 12 km inland from the Indian Ocean. electricity generated from the Alinta Wind Farm will be exported to an existing 132kV transmission line which crosses the wind farm site. energy assessment by expert adviser Installed Capacity MW 89.1 Net Long Term Mean energy Production p.a. (P50) GWh Net Capacity Factor % 47.0 More details of the contracts referred to can be found in Section For an explanation of the energy assessment process, refer to Section 6.4 and for associated risks, refer to Section

60 06 OVERVIEW OF THE BBWP PORTFOLIO ASIA PACIFIC, AUSTRALIA LAKE BONNEY 1 KEY INFORMATION Funding Revenue assurance Customers Construction Australian dollar denominated limited recourse debt provided by a syndicate of banks led by BNP Paribas. All the electricity and renewable energy certificate outputs are sold under a single long term offtake contract with a term of 10 1 years Country Energy - the fourth largest electricity retailer in Australia and wholly-owned by the government of New South Wales, Australia Fixed price turnkey engineering, procurement and construction contract with Vestas Operation Full commercial operations commenced in February 2005 Operations and maintenance contract for 5 1 year term with Vestas Land Regulatory regime Land leases typically with 30 2 year tenure and option to extend for two additional 5 year terms Australian MRET Scheme (see Section 6.2). NSW and ACT greenhouse gas abatement schemes may also apply Note: 1 from the start of operations: through to

61 BABCOCK & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Lake Bonney Stage 1 commenced full commercial operation in February 2005 with a total installed capacity of 80.5MW and an expected net energy output of GWh per annum. Lake Bonney Stage 1 consists of 46 Vestas 1.75 MW wind turbines. It is located on the Woakwine Range about 2km from the eastern shore of Lake Bonney, near Millicent in South Australia. Electricity generated from Lake Bonney Stage 1 is transmitted via a 132kV transmission line to the 132kV transmission grid through a substation located on-site. ENERGY ASSESSMENT BY EXPERT ADVISER Installed Capacity MW 80.5 Net Long Term Mean Energy Production p.a. (P50) GWh Net Capacity Factor % 29.9 More details of the contracts referred to can be found in Section For an explanation of the energy assessment process, refer to Section 6.4 and for associated risks, refer to Section

62 06 OVERVIEW OF THE BBWP PORTFOLIO EUROPE, SPAIN OLIVO PORTFOLIO KEY INFORMATION Funding Revenue assurance Construction Operation Land Euro denominated debt arranged by Bank of Scotland and Dexia The Olivento Companies which own the wind farms may choose annually between (a) a fixed tariff and (b) a market option whereby part of the compensation is derived from the spot electricity price in the wholesale market and part from a legislated premium plus bonus. Prices under option (b) are currently significantly higher and all Olivento Companies owned by BBWP with wind farms in operation have currently chosen this option Those wind farms which have already been acquired have passed their acceptance tests, regulatory approvals are available and they have entered into commercial operation. Construction has been undertaken by Gamesa Full commercial operation has commenced for those wind farms which have been acquired. Each operating wind farm benefits from a 10 year (from start of operations) operations and maintenance contract with Gamesa under which Gamesa will guarantee turbine availability levels and be liable for repair and insurance costs (other than owner s third party liability) A combination of land leases, easements and surface rights with 30+ year 2 tenure (from up to approximately 18 months before start of operation) and options to extend Regulatory regime 2 options: market option or fixed tariff (see Section 6.2) 60

63 BABCOCK & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT The Olivo Portfolio consists of 6 separate wind farms located in 6 different provinces across Spain. Three of these wind farms are operating and have been acquired by BBWP and the remaining wind farms are yet to be acquired by BBWP. In December 2004, BBWP agreed to acquire the Olivo Portfolio from Gamesa, one of the largest manufacturers and suppliers of wind turbines in the world. Under the terms of the Olivo Sale and Purchase Agreement, BBWP has agreed to purchase each wind farm from Gamesa at a fixed price after Gamesa has completed construction of the wind farm and secured all of the required regulatory approvals and authorisations for that wind farm and they are in commercial operation. The Olivo Portfolio, on completion of construction of all 6 wind farms, will have a total installed capacity of MW and a forecast net energy output of 363 GWh per annum. The portfolio of wind farms consists of 167 wind turbines. BBWP expects to have acquired the last of the wind farms in the portfolio by the end of Sierra La Muela El Serra da Olivo Wind Farm Name del Trigo Norte Redondal Loba La Plata El Sardon Owned by BBWP as at 31 August 2005 Yes Yes No No Yes No Operation start date Jan-02 Aug-03 Jan-05 Oct-05 1 Jun-05 Nov-05 1 ENERGY ASSESSMENT BY EXPERT ADVISER Installed Capacity MW Net Long Term Mean Energy Production p.a. (P50) GWh Net Capacity Factor % Note: 1 estimated 2 The current grid connection limits the capacity to 10MW. A new grid connection is under construction and has to be completed by the end of September 2005 otherwise Gamesa must compensate Olivento for the loss of revenues due to limited capacity More details of the contracts referred to can be found in Section For an explanation of the energy assessment process, refer to Section 6.4 and for associated risks, refer to Section

64 06 OVERVIEW OF THE BBWP PORTFOLIO EUROPE, GERMANY NIEDERRHEIN WIND FARM KEY INFORMATION Funding Revenue assurance Construction Operation Land Euro denominated limited recourse debt facility provided by a German commercial bank. Under German renewable energy law electricity utilities are obliged to connect wind power assets to their networks and to take for 100% of the electricity produced at the current (regulated fixed) tariff. BBWP expects to sign power purchase agreements prior to the start of commercial operations as follows: for Wachtendonk with RWE for Bocholt Liedern with BEW Fixed price lump sum engineering, procurement and construction turnkey contract with Nordex Energy GmbH 10 1 year maintenance contract with Nordex 10 1 year technical management agreement with Renerco 10 1 year operating management agreement with Renerco Land leases with 20 years 2 (minimum) tenure Regulatory regime German fixed price system (EEG) (see Section 6.2) Note: 1 from start of operations: Oct 2005 (estimated) 2 from

65 BABCOCK & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT The Niederrhein Wind Farm is 2 wind farm sites classified under the one name. The sites are located approximately 50km apart, at Wachtendonk and Bocholt-Liedern in the Northrhine-Westphalia region of Germany. BBWP acquired the development rights to the Niederrhein Wind Farm from Renerco Renewable Energy Concepts AG ( Renerco ) pursuant to a sale and purchase agreement dated 30 March The rights acquired by BBWP require the development of the wind farms to be completed on pre-agreed terms by Nordex, the turbine manufacturer and supplier, by October The Niederrhein Wind Farm is expected to have a total installed capacity of 19.5 MW and an expected net energy output of 37 GWh per annum. The Niederrhein Wind Farm will consist of 13 Nordex wind turbines in total. The wind farm located at Wachtendonk will be connected to the local electric utility RWE Rhein-Rhur AG ( REW ); the wind farm located at Bocholt-Liedern will be connected to the local electric utility Bocholter Energie und Wasserversorgung GmbH ( BEW ). Niederrhein wind farm site Wachtendonk Bocholt-Liedern Expected operations start date Oct-05 Oct-05 ENERGY ASSESSMENT BY EXPERT ADVISER Installed Capacity MW Net Long Term Mean Energy Production p.a. (P50) GWh Net Capacity Factor % More details of the contracts referred to can be found in Section For an explanation of the energy assessment process, refer to Section 6.4 and for associated risks, refer to Section

66 06 OVERVIEW OF THE BBWP PORTFOLIO NORTH AMERICA, USA SWEETWATER PHASE 1 KEY INFORMATION Funding Revenue assurance Customers Construction Debt that was drawn to fund construction of the wind farm was repaid at the start of commercial operations. At that time equity was fully funded (and there is no project debt financing) by a combination of active investors (known as the Class B Members) and passive investors (known as the Class A Members) as further described in Section 6.6. All electricity is sold under a long term- offtake contract with a term of 20 1 years TXU Portfolio Management Company LP Fixed price turnkey engineering, procurement and construction contract with M.A. Mortenson Company and a fixed price turbine and tower supply agreement with General Electric Wind Energy LLC ( GE Wind ) Operation Full commercial operations commenced in December 2003 Turbine and balance of plant or BOP operations and maintenance contracts for 5 year 1 term with General Electric Wind BBPOP is the Project and Fiscal Administrator responsible for managing day-to-day activities and financial reporting. Land Land leases with 30 or 40 year tenure 2 BBWP s percentage ownership 80% of 50% Class B Membership interests. Remaining 50% Class B Membership held by Catamount Energy Corporation 64 Regulatory regime USA PTCs (see Section 6.2)

67 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Sweetwater Phase 1 commenced full operations in December 2003 with a total installed capacity of 37.5 MW and an expected net energy output of GWh per annum. Sweetwater Phase 1 consists of 25 General electric SL 1.5MW wind turbines. It is located in Texas. electricity generated from Sweetwater Phase 1 is transmitted to the Lower Colorado River Authority and sold to TXU Portfolio Management. energy assessment by expert adviser Installed Capacity MW 37.5 Net Long Term energy Production p.a. (P50) GWh Net Capacity Factor % Notes to table on page 64: 1 from start of operations: from 2003 More details of the contracts referred to can be found in Section For an explanation of the energy assessment process, refer to Section 6.4 and for associated risks, refer to Section

68 06 OVeRVIeW OF THe BBWP PORTFOLIO north america, usa sweetwater phase 2 key information Funding As for Sweetwater Phase 1 Revenue assurance Customers Construction All electricity is sold under a long term- offtake contract with a term of 12 1 years Austin energy (City of Austin, Texas) Fixed price turnkey engineering, procurement and construction contract with Renewable energy Systems and a fixed price turbine and tower supply contract with General electric Wind Operation Full commercial operations commenced in February 2005 Turbine and BOP operations and maintenance contracts for 5 year 1 term with General electric Wind BBPOP is the Project Administrator and Fiscal Administrator responsible for managing day-to-day activities and financial reporting. Land Land leases with 30 or 40 year tenure 2 BBWP s percentage ownership 80% of 50% Class B Membership interests. Remaining 50% Class B Membership held by Catamount energy Corporation Regulatory regime USA PTCs (see Section 6.2) 66 Note: 1 from start of operations: from 2004

69 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Sweetwater Phase 2 commenced full operations in February 2005 with a total installed capacity of 91.5 MW and an expected net energy output of GWh per annum. Sweetwater Phase 2 consists of 61 General electric sle 1.5 MW wind turbines. It is located in Texas. electricity generated from Sweetwater Phase 2 is transmitted to the Lower Colorado River Authority and sold to Austin energy. energy assessment by expert adviser Installed Capacity MW 91.5 Net Long Term Mean energy Production p.a. (P50) GWh Net Capacity Factor % More details of the contracts referred to can be found in Section For an explanation of the energy assessment process, refer to Section 6.4 and for associated risks, refer to Section

70 06 OVeRVIeW OF THe BBWP PORTFOLIO north america, usa caprock key information Funding As for Sweetwater Phase 1 Revenue assurance Customers Construction Operation Land BBWP s percentage ownership All electricity is sold under a long term offtake contract with a term of 20 1 years Southwestern Public Service Company Fixed price turnkey engineering, procurement and construction contract with Texas Wind Power Company and a fixed price turbine and tower supply contract with Mitsubishi Power Systems Inc. ( MPS ) Full commercial operations commenced in December 2004 (phase A 60 turbines) and May 2005 (phase B 20 turbines) Turbine operations and maintenance contract for a 5 1 year term with MPS and BOP operations and maintenance contract for a 5 1 year term with enxco Service Corp. BBPOP is the Project and Fiscal Administrator responsible for managing day-to-day activities. Land leases with 2 successive 25 2 year terms (and one 35 year term) 80% of 80% Class B Membership interests. Remaining 20% Class B membership held by BBWe but may be sold. Regulatory regime USA PTCs (see Section 6.2) 68

71 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Caprock commenced full operations in December 2004 (phase A 60 MW) and May 2005 (phase B 20 MW) with a total installed capacity of 80 MW and an expected net energy output of GWh per annum. Caprock consists of 80 Mitsubishi Heavy Industries MWT 1000A-1.0MW wind turbines. It is located in the State of New Mexico, USA. electricity generated from Caprock is transmitted to the Southwestern Power Pool, Inc. and sold to the Southwestern Public Service Company. energy assessment by expert adviser Installed Capacity MW 80 Net Long Term Mean energy Production p.a.(p50) GWh Net Capacity Factor % Notes to table on page 68: 1 from start of operations: from 2003/2004 More details of the contracts referred to can be found in Section For an explanation of the energy assessment process, refer to Section 6.4 and for associated risks, refer to Section

72 06 OVeRVIeW OF THe BBWP PORTFOLIO north america, usa blue canyon key information Funding As for Sweetwater Phase 1 70 Revenue assurance Customers Construction All electricity is sold under a long term- offtake contract with a term of 20 1 years Western Farmers electric Cooperative Fixed price turnkey engineering, procurement and construction contract with M.A. Mortenson Company and a fixed price turbine and tower supply contract with Vestas US (formerly NeG Micon USA, Inc.) Operation Full commercial operations commenced in December 2003 Turbine operations and maintenance contract for a 5 1 year term with Vestas US and a BOP operations and maintenance contract for a 5 1 year term with Vestas US Zilkha Renewable Resources LLC (recently acquired by Goldman Sachs) is the Project Administrator responsible for managing day-to-day activities. The Project Administrator is a Class B Member. As of completion of the US Acquisition, BBPOP is the Fiscal Administrator and is responsible for financial reporting, cash management and tax preparation; currently the relevant Investment LLC, B&B Blue Canyon 1 LLC, fills this role. Land BBWP s percentage ownership Land leases with 20 2 year tenure and 10 year option to extend 80% of 50% Class B Membership interests. Remaining 50% Class B Membership held by Zilkha Renewable resources LLC and ehn US America Regulatory regime USA PTCs (see Section 6.2)

73 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Blue Canyon commenced full operations in December 2003 with a total installed capacity of MW and an expected net energy output of GWh per annum. Blue Canyon consists of 45 Vestas NM MW wind turbines. It is located in the State of Oklahoma. electricity generated from Blue Canyon is transmitted to Southwestern Power Pool, Inc. and sold to Western Farmers electric Cooperative. energy assessment by expert adviser Installed Capacity MW Net Long Term Mean energy Production p.a. (P50) GWh Net Capacity Factor % 40.6 Notes to table on page 70: 1 from start of operations: from 2003 More details of the contracts referred to can be found in Section For an explanation of the energy assessment process, refer to Section 6.4 and for associated risks, refer to Section

74 06 OVeRVIeW OF THe BBWP PORTFOLIO north america, usa combine hills key information Funding As for Sweetwater Phase 1 72 Revenue assurance Customers Construction All electricity is sold under a long term offtake contract with a term of 20 1 years PacifiCorp Fixed price turnkey engineering, procurement and construction contract with Wind energy Constructors, LLC and a fixed price turbine and tower supply contract with Mitsubishi Power Systems Inc. ( MPS ) Operation Full commercial operations commenced in December 2003 Turbine operations and maintenance contract for a 5 1 year term with MPS and a BOP operations and maintenance contract for a 2 1 year term (with an 8 year extension option) with Renewable Management Corporation eurus energy America Corp. is the Project Administrator responsible for managing day-to-day activities. The Project Administrator is a Class B Member. As of completion of the US Acquisition, BBPOP will be the Fiscal Administrator and is responsible for financial reporting, cash management and tax preparation; currently the relevant Investment LLC, B&B Combine Hills 1 LLC, fills this role. Land BBWP s percentage ownership Land leases with 60 2 year tenure with an option to extend year-to-year thereafter 80% of 50% Class B Membership interests. Remaining 50% Class B Membership held by eurus energy America Corp. Regulatory regime USA PTCs (see Section 6.2)

75 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Combine Hills commenced full operations in December 2003 with a total installed capacity of 41 MW and an expected net energy output of GWh per annum. Combine Hills consists of 41 MHI MWT 1000A-1.0MW wind turbines. It is located in the State of Oregon. electricity generated from Combine Hills is transmitted to PacifiCorp. energy assessment by expert adviser Installed Capacity Net Long Term Mean energy Production p.a. (P50) Net Capacity Factor MW 41.0 GWh % Notes to table on page 72: 1 from start of operations: from 2003 More details of the contracts referred to can be found in Section For an explanation of the energy assessment process, refer to Section 6.4 and for associated risks, refer to Section

76 06 OVeRVIeW OF THe BBWP PORTFOLIO 6.6 us asset structure Under the US Acquisition Agreement, BBWP will acquire membership interests in Babcock & Brown Wind Partners U.S.LLC ( BBWpus ) representing 80% of the economic interests in BBWPUS. The US Vendor, BBWe (a member of the Babcock & Brown Group), will retain the remaining 20% economic interest. BBIM will be the managing member of BBWPUS. BBWPUS owns indirect interests in five limited liability companies (each an investment llc ). BBWPUS indirectly owns 100% of each of these Investment LLCs except for Caprock LLC where BBWPUS indirectly owns 80% and Babcock & Brown currently holds the remaining 20%. each Investment LLC owns Class B Membership interests in a limited liability company which owns a wind farm (each a project llc ). The capital structure of each Project LLC is divided into Class A Membership interests and Class B Membership interests. Holders of Class A Membership interests ( class a members ) are institutional investors. Holders of Class B Membership interests ( class B members ) are an Investment LLC and in some cases also co-sponsors/co-developers. There is no project debt financing once commercial operations have commenced. Pursuant to the US Acquisition, BBWP will acquire indirect Class B Membership interests. Figure 6.6.1: BBWP s economic ownership structure in the US Assets babcock & brown wind partners bbim 80% nonmanaging member babcock & brown managing member 20% non-managing member bbwpus wind investment 1 wind investment 2 80% 20% investment llcs b&b sweetwater 1 llc b&b blue canyon llc b&b combine hills llc b&b sweetwater 2 llc b&b caprock llc class b member 50% 50% 50% 50% 100% project llcs sweetwater 1 project blue canyon project combine hills project sweetwater 2 project caprock project note: 100% unless otherwise stated 74

77 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Figure 6.6.2: Investor base of Project LLC class a members (non-managing members) class b members (managing members) project llc wind farm The following aspects of the US Assets structure are described in Section : funding economic interests of the Class A Members and the Class B Members managing member of a Project LLC important aspects of the US Acquisition structure accounting for and earnings trend of the US Assets 75

78 07 bbwp boards and management Left to right: Tony Battle, Nils Andersen, Douglas Clemson, Warren Murphy, Peter Hofbauer 7.1 BBWp Boards of directors Figure 7.1: Boards of Directors Babcock & Brown Independent Total Name of Company executive Directors (external) Directors Number Babcock & Brown Wind Partners Peter Hofbauer Nils Andersen 5 Services Limited Warren Murphy Tony Battle Doug Clemson Babcock & Brown Wind Partners Peter Hofbauer Tony Battle 4 Pty 1 Limited Warren Murphy Doug Clemson Babcock & Brown Wind Partners Peter Hofbauer Tony Battle 4 (Bermuda) Limited Warren Murphy Doug Clemson peter hofbauer chairman Babcock & Brown executive Peter Hofbauer is the Global Head of Babcock & Brown s Infrastructure & Project Finance business unit and co-ordinates the group s infrastructure and project finance activities worldwide. He joined Babcock & Brown in 1989 and has worked in both the Sydney and London offices. Prior to joining Babcock & Brown, Peter worked with Price Waterhouse and Partnership Pacific Limited/Westpac Bank. He is also a director of Babcock & Brown environmental Infrastructure Limited, Babcock & Brown Infrastructure Limited and of the responsible entity of Babcock & Brown Infrastructure Trust. Peter holds a Bachelor of Business degree and is a member of the Institute of Chartered Accountants and the Taxation Institute of Australia. Warren murphy director Babcock & Brown executive Warren Murphy is a senior executive in the Infrastructure & Project Finance group at Babcock & Brown, based in the Sydney office. Warren has led the development of Babcock & Brown s energy sector capability in Australia and New Zealand, including the renewable energy business, and has specialised in the development of new projects in the infrastructure sector. Recent transactions include the co-development of Redbank, Oakey and Braemar power stations, and the co-development of a number of renewable energy projects, including the Alinta and Lake Bonney wind farms in the Initial Portfolio. Warren joined Babcock & Brown in Prior to joining Babcock & Brown, Warren was a director of the project finance division of AIDC and before that worked at Westpac Banking Corporation. Warren holds a Bachelor of engineering (Hons) and a Bachelor of Commerce in Accounting and economics. Note: 76 1 Converting to a public company on 30 September 2005 and thereafter to be known as Babcock & Brown Wind Partners Limited

79 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT Nils andersen director independent Until recently, Nils held a senior position within Vestas, the Danish wind turbine manufacturer. Nils worked at Vestas for over 20 years. He was based in Denmark until 2003 when he was appointed as managing director of Vestas- Australia and was responsible for sales and marketing in the Pacific Region and South Africa. Nils started his career with Vestas as the export manager, responsible for market development worldwide and with a special focus on Indian sub-continent and Asia-Pacific countries. He subsequently held a number of management positions in sales and market development reporting to the CeO and then the board. His experience expands across the globe. Nils has also held industry positions such as export trade and international development councils and between 1994 and 1998 he was the vice-president of the european Wind Industry Association. Nils has held a number of board positions within the Vestas group companies. Before joining Vestas, Nils worked for FL Smidth, a leading manufacturer in cement plants based in Denmark. He worked with them in Brazil, South Africa and Denmark. Nils is a mechanical engineer by training. He has been based in Australia since a.j. (tony) Battle director independent Tony has held various senior management positions in the finance industry for over 30 years, and at various stages has been involved in the evaluation and funding of major structured and corporate financings across a number of industry sectors. On a number of different occasions during his career, Tony has been a member of the boards of directors, executive management committees and credit committees. His most recent role was in a senior position in the Corporate & Institutional division with Calyon Australia (following the merging of the international business operations of Credit Agricole Indosuez and Credit Lyonnais) and prior to that with Credit Lyonnais, Commonwealth Bank and Partnership Pacific. Tony holds a Bachelor of Commerce. douglas clemson director independent Doug is the former Finance Director of Asea Brown Boveri ( ABB ) where, from 1988 until his retirement in 1999, he was responsible for the corporate and project finance needs of the ABB group in Australia and New Zealand. He was instrumental in the establishment of the activities of ABB Financial Services in this region and its participation in the co-development, construction and funding of a number of infrastructure projects, including Perth Suburban Rail and the Sydney Light Rail Systems and the power generation facilities at Collie (WA), Stratford (NZ), Redbank (NSW) and Murrin Murrin (WA). Prior to joining ABB, Doug held senior line management and finance positions with manufacturing groups, ACI and Smiths Industries. Doug is the former chairman of Redbank Power and his previous directorships include General and Cologne Reinsurance, electric Power Transmission Group, ABB Australia, ABB New Zealand, Smiths Industries. Doug is an independent director of Babcock & Brown Investor Services Limited (the responsible entity of Babcock & Brown Infrastructure Trust (part of BBI)). See Section 7.4 in relation to this position. Doug is a qualified accountant and a Fellow of the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors. 77

80 07 BBWP BOARDS AND MANAGeMeNT 7.2 proposed alternate directors for B&B ExEcutivEs As a reflection of the global nature of BBWP, Peter Hofbauer and Warren Murphy are proposing to appoint, as their alternate directors, Michael Garland and Antonino Lo Bianco, 2 senior executives in Babcock & Brown s global Infrastructure & Project Finance business unit. michael garland proposed alternate director Babcock & Brown executive Michael manages the US Infrastructure & Project Finance team of Babcock & Brown. He joined Babcock & Brown in Prior to joining Babcock & Brown, Michael was a director of the State of California energy Assessments Office where he was responsible for the implementation of the state government s environmental and energy policies. Michael also coordinated and oversaw the design, construction, financing and operation of the California State energy facilities. Michael is a graduate of the University of California at Berkeley. He is based in Babcock & Brown s San Francisco office. antonino lo Bianco proposed alternate director Babcock & Brown executive Antonino manages the european Infrastructure & Project Finance team of Babcock & Brown. He joined Babcock & Brown in Prior to joining Babcock & Brown, Antonino worked with Nomura International plc as a member of its Italian Corporate Finance Group. Antonino is a graduate in Business Administration from Bocconi University in Milan. He is based in the Milan office of Babcock & Brown. 7.3 BBWp senior ExEcutivEs Senior executives employed by Babcock & Brown are seconded to BBIM to assist in conducting the activities of BBIM under the Management Services Agreements. The management team possesses strong financial, management and operating skills. They are focused on consolidating BBWP s growth to date and driving BBWP s future growth potential through its investment strategy. peter o connell chief Executive officer Between 1979 and 1994, Peter practised as a commercial lawyer with two major Australian law firms. Peter was a partner with Minter ellison and then with Gilbert & Tobin in Sydney. As a lawyer and adviser, Peter worked on a number of large infrastructure projects such as the privatization of the Williamstown Dockyard, purchase of AUSSAT, establishment of Optus, Telstra Stadium and the privatization of Loy Yang B and the ANZAC Frigate contract. In recent years, Peter has had a number of operational roles including as director of operations at Consolidated Press Holdings, managing director of a boutique business consultancy and most recently as managing director of Multiplex Infrastructure Pty Ltd (and for an interim period is continuing as non-executive chairman of Multiplex Facilities Management Pty Ltd). Peter is an experienced company director and has served on the boards of a number of Australian companies. Peter has a Bachelor of Arts (Hons) and an LLB degree, is admitted as a solicitor in NSW, ACT and Victoria and has an unrestricted practising certificate. geoff dutaillis chief operating officer Geoff Dutaillis recently joined Babcock & Brown to further his career in infrastructure development and specifically to focus on the expanding field of environmental infrastructure. Since joining Babcock & Brown, Geoff has worked on new investment opportunities for Babcock & Brown environmental Investments Limited and preparing BBWP for the Offer. Prior to joining Babcock & Brown, Geoff worked at Lend Lease for almost 19 years, including 7 years based in London with their european development business. Geoff has extensive experience in the development and project management of major projects, having had leadership roles on a number of landmark developments, including Bluewater in the Uk, at that time the largest retail and leisure complex in the Uk, and more recently as Project Director for the Rouse Hill Regional Centre, a new 100 hectare community in north-west Sydney. Geoff holds a Bachelor of engineering (Civil) (Hons) with additional qualifications in management, property and finance. 78

81 BABCOCk & BROWN WIND PARTNeRS PROSPeCTUS & PRODUCT DISCLOSURe STATeMeNT david silcock group financial controller David joined Babcock & Brown in August 2005 to fill the role of group financial controller of BBWP. Prior to joining Babcock & Brown, David worked as a chartered accountant in public practice for the international accounting firm, ernst & Young. After qualifying in the Uk, David relocated with ernst & Young to Silicon Valley in California for three years and then to the firm s Sydney office. David left public practice to join Woolworths Limited in a corporate finance role in October David is a chartered accountant and has been a member of the Institute of Chartered Accountants in england & Wales since He holds a Masters degree in economics. 7.4 BBWp corporate governance general BBWP recognises the importance of good corporate governance and is committed to complying with a code of conduct and other appropriate corporate governance policies. The corporate governance framework for BBWP is underpinned by the ASX Principles of Good Corporate Governance and Best Practice Recommendations ( asx guidelines ). The ASX Guidelines were released by the ASX Corporate Governance Committee on 31 March 2003 as a set of guidelines designed to maximise corporate performance and accountability in the interests of shareholders and the broader economy. The ASX Guidelines encompass matters such as board composition, committees and compliance procedures. BBWP has departed from the ASX Guidelines at the time of listing by not having an outright majority of independent directors on the Boards of BBWPL and BBWPB and by not having an independent chairman of the BBWP entities. It is noted that, in aggregate across the 3 BBWP Boards, there is a majority of independent directors. A Babcock & Brown executive is appointed as Chairman of each of the Boards and it is practical on an administrative level for the Boards to have a common chairman. Until the next AGM of BBI, Doug Clemson will continue to be an independent director of Babcock & Brown Investor Services Limited (the responsible entity of Babcock & Brown Infrastructure Trust (part of BBI)). Under the corporate governance framework adopted by BBWP, Doug would not be considered as an independent director of BBWP because he is a director of BBI. However, given the limited period for which this arrangement will last, the Directors do not consider that Doug s holding of directorships on both funds boards will impact on Doug s ability to act as an independent director of BBWP. corporate disclosure Listed entities are required to disclose in their annual reports the extent of their compliance with the ASX Guidelines and to explain why they have not adopted an ASX Guideline if they consider it to be inappropriate in their particular circumstances. The Boards will put in place policies designed to ensure that BBWPL, BBWPB and the Responsible entity meet all applicable standards of disclosure pursuant to the ASX Listing Rules. All material disclosed to ASX will also be promptly accessible through BBWP s website. In addition, BBWP will include on its website details of its corporate governance regime and a corporate governance statement will be included in BBWP s annual report. audit, risk & compliance committee To assist in the execution of their responsibilities, each of the Boards have established an Audit, Risk & Compliance Committee. This committee will report to the relevant Board to assist it in carrying out its obligations. The Boards, via the Audit, Risk & Compliance Committee, are committed to the management of risk throughout the operations of BBWP. each Audit, Risk & Compliance Committee will consider any matter relating to the affairs of the relevant BBWP entity and its external audit that it considers relevant in order to carry out its functions. In addition, each Audit, Risk & Compliance Committee will examine any other matters referred to it by the relevant Board. 79

82 07 BBWP BOARDS AND MANAGeMeNT compliance plan As required by the regime under Part 5C.4 of the Corporations Act governing managed investment schemes, BBWPS has prepared a Compliance Plan for BBWPT that has been lodged with ASIC. The Compliance Plan for BBWPT describes the procedures that the Responsible entity will apply in operating BBWPT to ensure compliance with the Corporations Act and the Trust Constitution. Given that the majority of the directors of BBWPS are external directors, the Corporations Act does not require, and the board of BBWPS does not currently propose, to appoint a separate compliance committee. In the absence of a compliance committee, the Audit, Risk & Compliance Committee will monitor compliance with the Compliance Plan for BBWPT. Copies of the Compliance Plan for BBWPT and the Trust Constitution are available for inspection free of charge until the Allotment Date by contacting the BBWPS Compliance Manager on (02) from 9:00am to 5:00pm (Sydney time) Monday to Friday. dealing in stapled securities The Boards will approve a code of conduct for dealing in Stapled Securities by the management, senior executives and the Directors of BBWP. This code will specify the periods during which the purchase and sale of Stapled Securities may occur by such persons and set out a notification procedure concerning any such transactions. The Audit, Risk & Compliance Committee will monitor compliance with this policy. custodian BBWPS has appointed Babcock & Brown Asset Holdings Pty Ltd (ABN ) (AFSL ) as Custodian of the assets of BBWPT. The Custodian holds the assets of BBWPT as directed by BBWPS. The Custodian acts only on the instructions of BBWPS. ongoing reporting to securityholders It is BBWP s policy to provide timely and accurate information to all stakeholders, including Securityholders and regulators. Under the terms of the Stapling Deed, BBWPL, BBWPB and BBWPS are obliged to notify and co-operate with each other in relation to the Stapled Securities, exchange relevant information and co-ordinate the release of announcements to ASX and financial reporting. Securityholders will receive an annual report and concise financial statements and a half yearly update. These reports will keep Securityholders informed of BBWP s performance and operations. Further, each of BBWPT, BBWPL and BBWPB will be a disclosing entity and will therefore be subject to regular reporting and disclosure obligations. Copies of any documents relating to BBWP lodged with ASIC may be obtained from, or inspected at, an ASIC office. Newsletters may be sent to Securityholders from time to time. 80

83 08 FEES AND EXPENSES 8.1 Fees and expenses of offer The principal costs payable by BBWP in connection with the Offer are: Fee Amount Recipient How and when paid Financial advisory fees A$16.6 million Babcock & Brown In cash from gross relating to the Offer proceeds of Offer and pre-offer related transactions Foundation Offer 2.5% of 132,837,384 Stapled BBAH In cash from gross Underwriter s Fees Securities at Offer Price, which proceeds of the Offer is equal to $4,649,308 Joint Bookrunners To each JPMorgan In cash from gross and Institutional Offer Joint Bookrunner: UBS proceeds of the Offer and Broker Firm Offer 50% of 2.5% of Underwriter s Fees 125,000,000 Stapled Securities comprising: at the Offer Price, being (Underwriting Fee) $2,187,500 plus (Management Fee) 50% of 0.35% of 125,000,000 Stapled Securities at the Offer Price, being $306,250 plus (Incentive Fee) at BBWP s absolute discretion, 50% of 0.50% of 125,000,000 Stapled Securities at the Offer Price, being $437,500 plus (in relation to oversubscriptions) 50% of 0.35% of 25,000,000 Stapled Securities at the Offer Price, being $61,250 plus (Additional Fee) (in relation to oversubscriptions) 50% of 1.5% of 25,000,000 Stapled Securities which are allocated to brokers or co-managers, at the Offer Price, being a maximum of $187,500 Other Offer and Approximately Various, including ASX, In cash from gross pre-offer related $5.4 million lawyers, accountants, proceeds of the Offer transactions costs printers, other providers of professional services 81

84 08 FEES AND EXPENSES 8.2 ongoing Fees and expenses The principal ongoing fees and expenses of BBWP are: Fee Amount Recipient How and when paid Base Fee A quarterly fee of 1.4% p.a. of Net Investment Value Manager Payable quarterly in ( niv ), split between BBWPL (1% p.a.), BBWPT cash out of assets (0.2% p.a.) and BBWPB (0.2% p.a.) under the of BBWPT or working Management Services Agreements less, in the working capital in case of BBWPT, only the Responsible Entity s the case of BBWPL remuneration (see separate category below). and BBWPB NIV = AMC + D + FC (UC + EMA) where: amc = in respect of a quarter is the volume weighted average price multiplied by the average closing number of Stapled Securities over the last 20 ASX trading days of the quarter. d = the aggregate sum of any external debt (including without limitation, hybrids) of BBWP and its wholly owned entities as at the last trading day of the relevant quarter (but not including debt of operating or project entities wholly owned by BBWP) FC = the aggregate sum of firm commitments to future investments by BBWP and its wholly owned entities as at the last trading day of the relevant quarter UC = the aggregate sum of uncommitted cash balances of BBWP and its wholly owned entities as at the last trading day of the relevant quarter (but not including cash balances of operating or project vehicles wholly owned by BBWP); and ema = the book value of any assets which are externally managed The Base Fee is calculated quarterly in arrears. The Base Fee becomes due and payable to BBIM in cash within five business days after submission of an invoice in respect of the Base Fee. A hypothetical example of the calculation of this fee is set out in Section 8.3. The Management Services Agreements are summarised in Section If BBWP is delisted, the Base Fee would be calculated on the consolidated gross assets of BBWP less external liabilities, as determined by an independent valuer. 82

85 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Fee Amount Recipient How and when paid Incentive Fee There may also be an entitlement to an incentive Manager Payable half-yearly in fee related to the relative performance of BBWP respect of a financial payable half yearly under the BBWPL Management half year, in cash out Services Agreement. This fee is payable by BBWPL of assets or subject only. The incentive fee is calculated half-yearly to the Corporations as 20% of the amount (if any) of the excess Act and the Listing percentage return of Stapled Securities over the Rules, up to 60% S&P/ASX 200 Accumulation Index for each may be paid in half year, multiplied by BBWP market capitalisation Stapled Securities and at the end of the half year. The incentive fee is will be so paid if the calculated in accordance with the following formula: BBWPL independent directors request Incentive Fee = 20% x (Stapled Security Return Benchmark Return) Benchmark return AMC W x BRI: where: amc W = AMC in respect of the quarter at the end of the half year period (for AMC, see Base Fee above) Bri = the movement in the S&P/ASX 200 Accumulation Index over the relevant period expressed as a percentage (and expressed as a positive number in the event of an increase and as a negative number in the event of a decrease), based on the average daily closing value of this index over the last 20 ASX trading days of the period as calculated and reported by Bloomberg L.P. compared with the average daily closing value of this index as calculated and reported by Bloomberg L.P. over the last 20 ASX trading days: a) For the purposes of the calculation in respect of the period beginning on the Trading Date (being the first day of trading of Stapled Securities on ASX) and ending 31 December 2005, prior to and including the Trading Date; b) For the purposes of the calculation in respect of subsequent periods ending 30 June, in the period ending 31 December in the immediately preceding calendar year; and c) For the purposes of the calculation in respect of subsequent periods ending 31 December, in the period ending 30 June in the same calendar year. stapled security return AMC W x SSRI: where: amc W = see above under Benchmark Return ssri = the movement in the Stapled Security accumulation Index (being an index formulated by BBIM to measure the accumulated ASX traded value of Stapled Securities) over the relevant period expressed as a percentage 83

86 08 FEES AND EXPENSES Fee Amount Recipient How and when paid Incentive Fee (continued) (and expressed as a positive number in the event of an increase and as a negative number in the event of a decrease), based on the average daily closing value of this index over the last 20 days of trading of Stapled Securities on the ASX in the period compared with: a) For the purposes of the calculation in respect of the period beginning on the Trading Date and ending 31 December 2005, the initial value assigned to such index (based on an AMC of the Commencement Value) as at commencement of the Trading Date; b) for the purposes of the calculation in respect of subsequent periods ending 30 June, the average daily closing value of this index over the last 20 days of trading of Stapled Securities on the ASX in the period ending 31 December in the immediately preceding calendar year; and c) the purposes of the calculation in respect of subsequent periods ending 31 December, the average daily closing value of this index over the last 20 days of trading of Stapled Securities on the ASX in the period ending 30 June in the same calendar year. Commencement Value = The number of Stapled Securities on issue on the Trading Date multiplied by the Offer Price. An Incentive Fee will only be payable in respect of a particular period where the movement of the SSRI is greater than the movement in the BRI for that period. If SSRI is less than BRI in any period, the number of basis points by which SSRI is less than BRI will be carried forward and deducted from SSRI of the subsequent period for the purposes of determining whether in that subsequent period SSRI exceeds BRI. The Incentive Fee is payable to BBIM in cash. However, subject to the Corporations Act and the ASX Listing Rules, BBIM is prepared to accept up to 60% of its Incentive Fee in the form of Stapled Securities and will be so paid if the BBWPL independent directors request. A hypothetical example of the calculation of this fee is set out in Section 8.3. The Management Services Agreements are summarised in Section If BBWP is delisted, from the date of the last trade of Stapled Securities on ASX, the Incentive Fee would be wholly payable in cash, and calculated on the basis that: SSRI = the movement in the net value of BBWP over the relevant period plus dividends and distributions for the period; and the net value of BBWP = the value of consolidated gross assets of BBWP less external liabilities, as calculated by an independent valuer. 84

87 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Fee Amount Recipient How and when paid Break fees One third of the net value of any break, termination Manager At the relevant or similar fees received by BBWP (reduced by time from the fees third party costs incurred) in connection with an received by the investment or proposed investment. This is payable relevant BBWP entity by the relevant BBWP entity under the Management Services Agreement to which it is a party. Responsible The Responsible Entity is entitled under the Trust Responsible Payable quarterly Entity Constitution to a management fee of 2% per annum Entity in cash from assets remuneration of the value of the gross assets of BBWP. of BBWPT The Responsible Entity intends to exercise its right under the Trust Constitution to waive the fee referred to above to such that it is paid remuneration of $500,000 per annum, increased for CPI. For so long as the BBWPS Management Services Agreement remains in place, the Responsible Entity is waiving its rights in light of the services to be performed by the Manager under the BBWPS Management Services Agreement. The Responsible Entity may increase its remuneration from time to time to reflect any increase in its overheads as responsible entity of BBWPT and notice of any such increase would be given as required by law and disclosed to ASX. Custodian Fee % p.a. of the gross asset value of BBWPT. Custodian Payable quarterly in A hypothetical example of the calculation of the cash out of the assets Custodian Fee is set out in Section 8.3. of, or as an expense, The Custodian Agreement is summarised in of, BBWPT Section Reimbursement The Manager will be entitled to an amount per annum Manager In cash at the relevant of out of in respect of expenses. This amount is initially set time out of the assets pocket expenses at $6 million payable by BBWPL. Throughout the of BBWPT or out of incurred by term of the BBWPL Management Services Agreement, working capital of the Manager this amount increases for CPI and may be increased BBWPL or BBWPB, in performing by approval of the relevant Board after certain as applicable. duties periods of time (which periods do not exceed 5 years) to reflect increased actual or estimated expenses. The Manager is also entitled to recover any costs paid by it on behalf of BBWP and any costs in providing the services to the extent that these require input beyond the scope of the management team or are additional services. The Management Services Agreements are summarised in Section Reimbursement Subject to the Corporations Act, the Responsible Responsible In cash at the relevant of out of Entity is entitled to be reimbursed out of the assets Entity time, paid out of pocket expenses of BBWPT for all expenses incurred by it in relation assets of, or as an incurred by to the proper performance of its duties in respect expense of, BBWPT the Responsible of BBWPT. Entity The Trust Constitution is summarised in Section Reimbursement The Custodian is entitled to reimbursement of all Custodian In cash at the relevant of out of expenses properly incurred, including taxes, time, paid out of pocket expenses settlement, delivery, registration and transaction assets of, or as an incurred by charges properly incurred in satisfying its obligations expense of, BBWPT the Custodian under the Custodian Agreement. The Custodian Agreement is summarised in Section

88 08 FEES AND EXPENSES Fee Amount Recipient How and when paid Financial Generally fees are negotiated at the time on Babcock & In cash, at the time advisory fees reasonable market terms. Brown the relevant services under Exclusive The quantum of fees payable in relation to a particular are provided out of Financial Advisory transaction or service that is an acquisition must be the assets of BBWPT Agreement at least 1.5% of the investment value of the relevant or out of working target and, in relation to other services provided under capital of BBWPL or the agreement, it is proposed that a minimum fee will BBWPB, as applicable be approved by the Boards at the time of the first provision of that service and such fee may be increased to reflect market terms and conditions from time to time by approval of the Boards. A financial advisory fee is payable in respect of services in connection with the LB2 Financial Close equal to 1.25% of the investment value. In the context of the agreement, investment value means the capital invested by BBWP plus the proportion of the debt financing to the investment represented by BBWP s investment. The Exclusive Financial Advisory Agreement is summarised in Section European There may also be an entitlement to an incentive fee Babcock & In cash at the time of Framework related to an investment by BBWP in a wind farm Brown: acquistion of the Assets asset under the relevant Framework Agreement German relevant wind farm, incentive fees based on the estimated annual net energy (based framework out of the assets on P50 scenario) of that wind farm investment assets or working capital and calculated as a multiple of the amount (if any) B&B Germany of BBWPL of the difference between a target price per GWh and Spanish the actual price per GWh. The amount of the fee framework depends on the level of return for BBWP. assets B&B Uk The Framework Incentive Fee payable to the relevant Babcock & Brown entity is calculated at the time of the completion of the purchase of a wind farm in accordance with the following formula: Framework Incentive Fee = F x (AP P) x APE where: F = 0.8 if the projected return for BBWP is more than 15% 0.5 if the projected return for BBWP is between 14% and 15% 0.2 if the projected return for BBWP is more than 13% and less than 14% ap = acceptable price p = actual price ape = annual producible energy BBWPL has also agreed to reimburse the relevant Babcock & Brown entity for its costs and expenses. The Framework Agreements are summarised in Section

89 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Fee Amount Recipient How and when paid Debt Facility Underwriting fee, commitment fees on undrawn BOS Payable at times amounts, and annual security trustee fee in International standard in the amounts usual for a debt facility of this kind (Australia) market for a debt Limited facility of this kind. Each of these amounts will be paid out of working capital of BBWPL Wind farm At commercial rates prevailing at the time of the The relevant By the relevant wind asset contract but, for example, not expected to exceed asset manager farm asset, in management $1.8 million per annum in aggregate across the or service accordance with the or support Initial Portfolio in the Forecast Period provider the relevant service services fees service contract Note: where amounts are payable by BBWP, typically either each of BBWPL, BBWPB and the Responsible Entity are jointly and severally liable for such amounts or each of them is liable in the proportion refereable to the level of service or benefit provided to each of them. 8.3 Worked examples of Base, incentive and CUstodian Fee Hypothetical examples of calculations of Base Fee and incentive Fee Set out below are hypothetical examples of the manner in which the Base Fee and the Incentive Fee will be calculated. For the purposes of each example, it is assumed that the Stapled Securities are listed for the whole of the relevant period. The hypothetical examples are provided for illustrative purposes only and do not purport to represent the likely Base Fee or Incentive Fee (if any) payable to BBWP or the likely performance of the price of the Stapled Securities or relevant indices. Note that, in preparing the Financial Information in Section 9, it has been assumed that BBWP will neither under-perform nor out-perform the indices, with the result that, for purposes of the Directors Forecasts and the Proforma Directors Forecasts, it is assumed no Incentive Fee will be payable. Base Fee hypothetical example: Assumptions for the purpose of this hypothetical example Calculated as the aggregate Base Fee payable to the Manager part each by BBWPL, BBWPB and the Responsible Entity Days in quarter 92 A1 Average number of Stapled Securities on issue during the last 20 days of trading in the quarter 488,000,000 A2 Volume weighted average price per Stapled Security over the last 20 days of trading in the quarter $1.48 A Average market capitalisation of BBWP during the last 20 days of trading of the quarter (= A1 x A2) $722,240,000 B External borrowings of BBWP at the end of the quarter $375,000,000 C Firm commitments to future investments $0 D Uncommitted cash balances at the end of the quarter $200,000,000 E Book value of externally managed assets $85,000,000 F Remuneration payable to Responsible Entity for the quarter on basis of $500,000 for 365 days $126,027 87

90 08 FEES AND EXPENSES The Net Investment Value for the quarter: = A + B + C (D + E) = $722,240,000 + $375,000,000 + $0 ($200,000,000 + $85,000,000) = $812,240,000 The Base Fee for the quarter: = [(1.4% x $812,240,000) x 92/365] $126,027 = $2,740,179 Incentive Fee for half year: Hypothetical example 1: Assumptions for the purpose of this hypothetical example A Average Market Capitalisation of BBWP during the last 20 days of trading in the relevant period $685,000,000 B Average closing Stapled Security Accumulation Index during the last 20 days of trading in the previous period C Average closing Stapled Security Accumulation Index during the last 20 days of trading in the relevant period Y Average closing Benchmark Return during the last 20 days of trading in the previous period 34,335 Z Average closing Benchmark Return during the last 20 days of trading in the relevant period 34,285 Stapled Security Return for the period: = A x (C B)/B = $685,000,000 x ( )/1.000 = $30,825,000 Benchmark Return for the period: = A x (Z Y)/Y = $685,000,000 x (34,285 34,335)/34,335 = -$997,524 Incentive Fee for the period: = 20% x ($30,825,000 (-$997,524) = $6,364,505 Note the SSRI (0.045) is greater than the BRI (0.001) in this period, therefore there will be no deficit basis points carried forward to the next period and an Incentive Fee of $6,364,505 is payable. Incentive Fee for half year: Hypothetical example 2: Assumptions for the purpose of this hypothetical example A Average Market Capitalisation of BBWP during the last 20 days of trading in the relevant period $685,000,000 B Average closing Stapled Security Accumulation Index during the last 20 days of the trading in the previous period C Average closing Stapled Security Accumulation Index during the last 20 days of trading in the relevant period Y Average closing Benchmark Return during the last 20 days of trading in the previous period 34,285 Z Average closing Benchmark Return during the last 20 days of trading in the relevant period 36,411 88

91 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Stapled Security Return for the period: = A x (C B)/B = $685,000,000 x ( )/1.045 = $32,775,120 Benchmark Return for the period: = A x (Z Y)/Y = $685,000,000 x (36,411 34,285)/34,285 = $42,476,593 Incentive Fee for the period: = 20% x ($32,775,120 $42,476,593) = -$1,940,295 No Incentive Fee for the period since the movement in the Stapled Security Return is less than the Benchmark Return. Note the SSRI (0.048) was less than the BRI (0.062) in this period, therefore there will be a deficit in the basis points carried forward to the next period of Incentive Fee for half year: Hypothetical example 3: Assumptions for the purpose of this hypothetical example A Average Market Capitalisation of BBWP during the last 20 days after trading in the relevant period $685,000,000 B Average closing Stapled Security Accumulation Index during the last 20 days of the trading in the previous period C Average closing Stapled Security Accumulation Index during the last 20 days of trading in the relevant period Y Average closing Benchmark Return during the last 20 days of trading in the previous period 36,411 Z Average closing Benchmark Return during the last 20 days of trading in the relevant period 36,985 Stapled Security Return for the period: = A x (C B)/B = $685,000,000 x ( )/1.095 = $34,406,393 Benchmark Return for the period: = A x (Z Y)/Y = $685,000,000 x (36,985 36,411)/36,411 = $10,798,660 Incentive Fee for the period: = 20% x ($34,406,393 ($10,798,660) = $4,721,547 Note the SSRI was less than the BRI in the previous period by Therefore this deficit will be deducted from the SSRI of this period to determine whether the adjusted SSRI exceeds BRI in order to obtain the Incentive Fee. = (SSRI of current period Deficit of previous period) BRI = ( ) = As the SSRI is greater than the BRI less the deficit of the previous period, an Incentive Fee for the period is payable amounting to $4,721,

92 08 FEES AND EXPENSES Hypothetical example of Custodian Fee Assumptions for the purpose of this hypothetical example A Group gross assets of BBWP $685,000,000 Custodian Fee for the quarter: = (0.0125% x A) / 4 = (0.0125% x $685,000,000) / 4 = $21, Hypothetical example of european Framework asset incentive fee Assumptions for the purpose of this hypothetical example A Projected return 13.5 B Acceptable Price (per MW) (euro) 6000 C Actual Price (per MW) (euro) 5000 D Annual Producible Energy (MW) 20 Incentive fee for the investment: = 0.2 x (B C) x D = 0.2 x ( ) x 20 = euro 4, gst If the Responsible Entity is or becomes liable to pay GST on fees or expenses not described in this Offer Document as GST inclusive, it is entitled to be reimbursed out of the assets of BBWPT for the amount of GST. BBWPL, BBWPB or the Responsible Entity, as applicable, may not be entitled to full input tax credits or reduced input tax credits for any GST on fees or expenses and therefore the actual costs to BBWPL, BBWPB or BBWPT, as applicable, may be more than the fee amounts disclosed. 90

93 09 FiNANciAl information 9.1 introduction The financial information of BBWP contained in this Section comprises: Australian equivalents to International Financial Reporting Standards ( a-ifrs ) historical summaries of financial performance and cash flows for the years ended 30 June 2004 and 2005 ( Historical information ) A-IFRS forecast summaries of financial performance and cash flows for the years ending 30 June 2006 and 2007 ( directors Forecast ) A-IFRS summary historical geographical segment information for the years ended 30 June 2004 and 2005 and forecast geographical segment information for the years ending 30 June 2006 and 2007 A-IFRS pro forma forecast summaries of financial performance and cash flows for the year ending 30 June 2006 which reflect the financial impact of 12 months of operations for the Initial Portfolio and the full year impact of corporate overheads, including the Base Fee payable to the Manager ( pro Forma directors Forecast ) Summary A-IFRS pro forma financial position as at 30 June 2005 prepared on the basis that the restructure of BBWP and the Offer and related transactions had taken place on this date ( pro Forma Balance sheet ). Furthermore, additional financial information of BBWP is set out in the Appendices as follows: Appendix 1: Historical summaries of financial performance for the years ended 30 June 2004 and 2005 under Australian generally accepted accounting principles ( agaap ) and A-IFRS Detailed A-IFRS pro forma financial position as at 30 June 2005 with adjustments. Appendix 2: The consolidated financial statements of Global Wind Partners ( gwp ) for the year ended 30 June 2005 ( 2005 Consolidated Financial statements ). The 2005 Consolidated Financial Statements are presented under AGAAP and were audited by Ernst & Young. The Historical Information and the Pro Forma Balance Sheet have been reviewed by the Independent Accountant, Ernst & Young. The Independent Accountant s Historical Financial Information Report is included in Section The Directors Forecast and Pro Forma Directors Forecast have been reviewed by the Independent Accountant, Ernst & Young Transaction Advisory Services Limited, and the results of that review are outlined in the Independent Accountant s Forecast Financial Information Report in Section Subsequent to the audit of the 2005 Consolidated Financial Statements of GWP, Ernst & Young has resigned as auditor of each of BBWPL and BBWPT and PricewaterhouseCoopers has accepted its appointment as auditor of BBWPL, BBWPT and BBWPB. This change in auditor was effected to comply with internal policies of Babcock & Brown which seek to ensure the separation of the auditors of Babcock & Brown and the auditors of funds managed by Babcock & Brown, such as BBWP. Unforeseen events The Directors Forecast has been prepared by BBWP and adopted by the Directors and is based on a number of estimates and assumptions concerning future events, including the key assumptions set out in Section 9.8. The Offer proceeds detailed in this Section are based on the Offer. However BBWP has reserved the right to accept oversubscriptions of up to a further 25 million Stapled Securities resulting in an additional $35 million of proceeds. This potential additional amount of up to $35 million has not been underwritten by the Underwriters and accordingly has not been included in the Directors Forecast. BBWP has prepared the Directors Forecast with care and attention and considers the assumptions, when taken as a whole, to be reasonable at the time of preparing this Offer Document. However, these assumptions are by their very nature subject to significant uncertainties and contingencies, many of which are outside the control of BBWP and are not predictable. Events and outcomes may differ in quantum and timing from the assumptions and consequently this may have a material impact on the Directors Forecast. As such, the actual results of BBWP are likely to vary from the Directors Forecast and any variation may be materially positive or negative. Accordingly, BBWP cannot give any assurance that the Directors Forecast will be achieved. The 91

94 09 FINANCIAL INFORMATION Historical Information and the Directors Forecast should be read together with the key assumptions underlying their preparation, the sensitivity analysis, the Independent Accountant s Reports, the risk factors and other information contained in this Offer Document. In particular, potential investors should note that past performance is not necessarily a guide to future performance. 9.2 summary of operations of BBWp Revenue is derived from the sale of electrical energy generated by the wind farms and from the sale of RECs (if applicable). BBWP s Initial Portfolio (refer Section 6 for further detail) includes wind farms in Australia, Spain, Germany and the US. In Australia, Germany and the US, BBWP has secured long term PPAs with offtake counterparties under which the purchase price for electricity (and RECs, as appropriate) is fixed for a period of time, generally between 10 to 20 years and, in some cases, with an option to extend for a further 5 years. In Spain, wind energy generators can elect to sell energy at a fixed tariff or a market price, both of which are, to some extent, based on prevailing daily market prices for electricity. For 2005, BBWP has elected to sell energy produced by the wind farms in the Olivo Portfolio owned by BBWP at the market option price and the market option price has been assumed in preparing the Directors Forecast. Please refer to Section 6.2 for more details of the regime in Spain. The main cost of operating a wind farm is the operating and maintenance cost of the plant and equipment (approximately 48% of operating costs (2007)). BBWP has negotiated contracts with the supplier of the wind turbines for each wind farm to provide operating and maintenance services for periods of the first 5-10 years of operations. Other operating costs include insurance, land rental payments to landowners, administration and regulatory compliance costs and depreciation of plant and equipment. Other costs, besides the direct operating costs noted above, relate to financing costs payable to third party financiers, corporate overheads and fees that are payable to BBIM under the terms of the Management Services Agreements, custody fees payable to the Custodian and advisory fees payable to service providers. Corporate overheads include the salaries of the BBWP management team, fees to external consultants and advisers and the administration and operations of the three listed entities of BBWP. The Base Fee and Incentive Fee that are payable to BBIM, as the Manager of BBWP and other items referred to in this paragraph are discussed in detail in Section Basis of preparation of BBWp HistoriCal information The BBWP historical financial information that is contained in Appendix 2 has been prepared under AGAAP. The Financial Reporting Council and the Australian Accounting Standards Board require the adoption of A-IFRS for financial years beginning on or after 1 January BBWP is therefore required to comply with, and report under, A-IFRS for the Financial Year starting on 1 July The historical financial information in Appendix 1 has been adjusted for differences between AGAAP and A-IFRS. The pro forma information has been prepared in accordance with A-IFRS. The material differences between the historic financial performance and financial position of BBWP under existing AGAAP and under A-IFRS relate to: Goodwill: under A-IFRS goodwill is tested for impairment on an annual basis and is not amortised. Consequently, the amortisation expense of $0.4 million, which was incurred under AGAAP in 2005 is not charged under A-IFRS and there is a corresponding increase in the amount of intangible assets. Furthermore, under AGAAP, goodwill that relates to the acquisition of a foreign entity is translated at the rate of exchange at the time of the transaction, whereas, under A-IFRS, the current rate at balance date is used. In 2005, the acquisition of three Spanish wind farms resulted in the recognition of goodwill. Under A-IFRS, the translation of this goodwill at balance date results in an Australian dollar equivalent amount that is $1.3 million lower than the AGAAP equivalent translation at historic rates. The combined effect of the above is to decrease goodwill by $0.9 million. Financial Instruments: under A-IFRS, hedge accounting can only be applied to the extent that effectiveness tests are met. If these tests are satisfied, any gains and losses on the derivative are recognised within equity until the hedged transaction occurs, at which point they are released to profit and loss. To the extent that the tests are not satisfied, then all or some of the gains and losses are immediately reflected within profit and loss. The fair value of effective hedges, which are outstanding at 30 June 2005, amounts to a liability of $10.7 million, which is recognised within equity. This liability has zero tax base and results in a deferred tax asset of $3.2 million. 92

95 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 9.4 Basis of preparation of directors ForeCast The Directors Forecast has been prepared under A-IFRS on the basis of a number of assumptions, including the general and specific assumptions set out below. This information is intended to assist potential investors in assessing the reasonableness and likelihood of the assumptions occurring and is not intended to be a representation that the assumptions will occur. Potential investors should be aware that the timing of actual events and the magnitude of their impact may differ from that assumed in preparing the Directors Forecast and that this may have a positive or negative effect on BBWP s actual financial performance. Potential investors are advised to review the key assumptions in conjunction with the sensitivity analysis set out in Section In preparing the Directors Forecast, investments in US wind farms have been equity accounted. Refer to Section for an explanation of the US Assets structure and further detail regarding the accounting treatment. 9.5 summary of BBWp HistoriCal and ForeCast profit and loss statement Set out in Figure below is a summary of the Historical Information relating to the years ended 30 June 2004 and 2005 and of the Directors Forecast for the years ending 30 June 2006 and 2007 prepared under A-IFRS. Note that past performance is not an indication of future performance. A summary of historical information prepared under AGAAP is included in Appendix 1. Figure Profit and Loss Statement Directors Directors ($ 000) Historical Historical Forecast Forecast Total product revenue 16,607 76, ,279 Operating Costs (2,070) (13,251) (17,459) Corporate Costs (46) (1,677) (9,158) (12,524) earnings before interest, tax, depreciation and amortisation (ebitda) (before associate) (46) 12,860 54,555 75,296 Share of net profit of equity accounted investments 1 2,899 4,868 ebitda (after associate) (46) 12,860 57,454 80,164 Depreciation and amortisation (5,672) (19,946) (25,995) earnings before interest and tax (ebit) (46) 7,188 37,508 54,169 Net borrowing costs 3,045 (2,280) (18,188) (22,776) profit before tax 2,999 4,908 19,320 31,393 Income tax expense (236) (1,775) (5,796) (9,418) net profit after tax (npat) 2,763 3,133 13,524 21,975 revenue growth (%) ebitda margin (before associate) (%) net output generated (gwh) Australia and Europe United States , ,655 2,182 Note: 1 Net output generated United States relates to the wind farms in the US. The investment made in these wind farms qualifies as an associate for accounting purposes and is equity accounted. Earnings from this investment are presented in the line referred to as Share of net profit of equity accounted investments. Consequently, individual revenue and expense lines do not include any amounts relating to the US wind farms. 93

96 09 FINANCIAL INFORMATION Set out below in Figure is a summary of BBWP s historical performance under A-IFRS for the years ended 30 June 2004 and 2005 and the Directors Forecast for the years ending 30 June 2006 and 2007, in each case split by geographic region. Figure Performance by Geographic Region Australia Directors Directors ($ 000) Historical Historical Forecast Forecast Output generated GWh Total product revenue 9,005 33,705 50,090 EBITDA (before corporate overheads and fees and before associate) 7,768 26,866 41,050 Europe Directors Directors ($ 000) Historical Historical Forecast Forecast Output generated GWh Total product revenue 7,602 43,259 55,189 EBITDA (before corporate overheads and fees and before associate) 6,769 36,847 46,770 United States of America Directors Directors ($ 000) Historical Historical Forecast Forecast Share of net profit of equity accounted investments 2,899 4,868 94

97 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 9.6 summary of BBWp HistoriCal and ForeCast CasH FloW statement Set out in Figure below are the Historical Cash Flow Statements for the years ended 30 June 2004 and 2005 and the Directors Forecast Cash Flow Statements for the years ending 30 June 2006 and 2007: Figure Cash Flow Statement Directors Directors ($ 000) Historical Historical Forecast Forecast Net Operating Cash flow 1 (18,109) (5,719) 43,254 68,506 (18,109) (5,719) 43,254 68,506 net investing Cash flow Capital expenditure (82,728) (236,989) (395,616) (82,728) (236,989) (395,616) net Financing Cash flow Capital raising (including Offer) 62, , ,968 Net proceeds / (repayment) of borrowings 119, , ,369 (15,920) Distributions to Securityholders (1,138) (12,010) (47,620) (52,546) 180, , ,717 (68,466) net increase / (decrease) in cash held 79,443 30, , Cash at the beginning of the period 79, , ,469 Cash the end of the period 79, , , ,509 Note: 1 Includes cash distributions from the five US wind farms to be acquired pursuant to the US Acquisition of $7.6 million in 2006 and $11.1 million in Note that past performance is not an indication of future performance. 9.7 ManageMent discussion and analysis product revenue Total product revenue of $16.6 million in 2005 is derived from the wind farms that became operational in that year. These were Lake Bonney Stage 1 and three Olivo wind farms in Spain. No wind farms were operational in Total product revenue of $77.0 million in 2006 (of which $18.2 million relates to REC revenue from LB1 and Alinta Wind Farm) includes the commencement of operations at the Alinta Wind Farm, Niederrhein and the three remaining Olivo wind farms to be acquired pursuant to the Olivo Acquisition, as well as a full year s impact of operations at Lake Bonney Stage 1. Total product revenue of $105.3 million in 2007 (of which $26.5 million relates to REC revenue from LB1 and the Alinta Wind Farm) reflects a full operating year for all the wind farms of the Initial Portfolio. earnings before interest, tax, depreciation and amortisation (ebitda) EBITDA was $12.9 million in 2005 and nil in 2004 as BBWP owned no wind farms that were operational in that year. Revenue of $16.6 million in 2005 was offset by operating costs, mostly relating to any ongoing connection fees, operating and maintenance costs, as well as administrative and legal expenses. EBITDA is forecast to increase by $44.6 million to $57.5 million in EBITDA of $57.5 million reflects the combined impact of revenue growth of $60.4 million, partially offset by a forecast increase of $18.7 million in operating costs (consistent with the start of operations for the Alinta Wind Farm, Niederrhein Wind Farm and the remaining Olivo Wind Farms), corporate overheads and the Base Fee. Forecast 2006 EBITDA and Net Operating Cashflow include $2.9 million of equity accounted earnings and $7.6 million in cash distributions from the five US wind farms to be acquired pursuant to the US Acquisition. EBITDA is forecast to increase by $22.7 million to $80.2 million in Revenue increases of $28.3 million are forecast to be partially offset by a full year s operating costs for all wind farms in the Initial Portfolio and a full year of corporate overheads and the Base Fee. Forecast 2007 EBITDA and Net Operating Cashflow include $4.9 million of equity accounted earnings and $11.1 million in cash distributions respectively from the five US wind farms to be acquired pursuant to the US Acquisition. 95

98 09 FINANCIAL INFORMATION It is expected that BBWP will receive $46.5 million in cash distributions relating to the repayment of initial capital of Class B Membership interests from the five US wind farms to be acquired pursuant to the US Acquisition from acquisition date to the time when the Class B Members have been repaid their initial capital investment. For details on the US wind farm structure, see Section directors ForeCast assumptions general assumptions General assumptions used in preparing the Directors Forecast include: No significant change to the legislative regimes and regulatory environments in the jurisdictions in which BBWP operates No material change in the competitive activity in the markets in which BBWP operates No material change to inflation rates from current levels No changes in accounting standards or other mandatory professional reporting requirements of the Corporations Act or changes in BBWP s accounting policies (other than required by A-IFRS) which would have a material effect on BBWP s financial performance, cash flows or financial position. The impact of the adoption of A-IFRS is discussed and highlighted in Section 9.3. No material change in the economic and political conditions with respect to the renewable energy industry in the countries in which BBWP operates An average forward A$ : $US exchange rate of A$1.00 = US$0.76 for 2006 and A$1.00 = US$0.75 for 2007 An average forward A$ : 7 exchange rate of A$1.00 : 0.61 for 2006 and A$1.00 : for 2007 Project debt at the individual wind farm level is fully sourced in local currency and predominantly hedged against movements in underlying interest rates. The Debt Facility is denominated in euros to fund BBWP s euro denominated capital investments The wind farm projects and potential opportunities described in section 9.10 are not included in the Directors Forecast or Pro Forma Directors Forecast due to the current stage of their development or their prospective nature No material amendment to any agreement or arrangements relating to BBWP or the wind farms in the Initial Portfolio The Directors and senior management of BBWP being retained. revenue and expense assumptions While the financial condition and results of operations of BBWP are affected by a number of factors, the Directors of BBWP believe the following are of particular importance. The Long Term Mean Energy Production (P50) has been adopted for the preparation of the Directors Forecast and the Pro Forma Directors Forecast. The Long Term Mean Energy Production, which has been adopted by the Directors in the Directors Forecast, is based on independent industry expert reports for each wind farm in the Initial Portfolio. The Directors are comfortable with the methodology employed, the underlying assumptions used and the outcomes achieved. This Long Term Mean Energy Production level is regarded as the most appropriate estimate for financial forecast purposes. However, the uncertainty of data measurement and prediction and the natural variability of some of the parameters, in particular wind, could have a material effect on the Directors Forecasts. Refer to Section 6.4 for details on wind measurement, forecasting and sensitivities. Forecast energy output is dependent upon construction being completed by the scheduled construction completion dates for those wind farms that are not yet operational. Any delay to the forecast construction end dates will impact the forecast energy output and hence revenue and EBIT. The wind farms that are not operational at the date of this Offer Document are the Alinta Wind Farm, Niederrhein and three Olivo wind farms to be acquired pursuant to the Olivo Acquisition. 96

99 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT In Spain, the government has introduced a Special Regime to encourage investment in renewable energy. Under this regime, energy producers can choose a fixed tariff or a market option price. The Directors Forecast assumes that the Olivo wind farms elect to receive the market option price. Although this option has the potential for higher returns, it is subject to greater price fluctuation as a higher proportion of the market option price is dependent upon underlying price movements in the wholesale electricity market. The Directors Forecast assumes the market option price is the mid point of the price range provided by independent advisors. A sensitivity has been performed in Section 9.11 showing the potential impact if the market option price was assumed to be at the low end of the range. Corporate costs are based on historical operating expenditure, adjusted for expected changes such as assumed increases in headcount and additional costs associated with operating as an entity listed on the ASX. Note that corporate costs take into consideration the future management and administration of the prospective projects outlined in Section However, these projects are not otherwise included in the Directors Forecast due to their early stage of development or acquisition or their prospective nature. The Base Fee is classified as a corporate cost in the Directors Forecast. For the purposes of the Directors Forecast only the Base Fee has been included as it is not possible to forecast the Incentive Fee, if any, which may be payable to BBWP. Please refer to Section 8 for details on the Base Fee and the Incentive Fee and worked examples of how these fees are calculated. Figure below sets out the specific assumptions used to forecast the revenue and expenses for the Directors Forecast: Figure Wind Farm specific assumptions Assumption LB1 WWP Olivo Niederrhein US Assets Long Term Mean Energy Production (P50) (GWh) ,203.8 PPA in place Yes Yes Market price Currently being Yes option finalised Term of PPA 1 10 yrs 20 yrs Market price Currently being 20 years (electricity (electricity) option finalised except for and RECs) & 10 yrs Sweetwater 2 (RECs) which is 12 years. O&M counterparty Vestas Vestas Gamesa Nordex Various Term of O&M contract 1 5 Yrs 5 Yrs 10 Yrs 10 Yrs 5 Yrs Tax rate 30% 30% 35% 35% n/a 2 CPI 2.5% 2.5% 2006: 2.5%; 2.2% 2.0% 2007: 2.4% Note: 1 From start of operations. For these dates see Section No tax is paid on BBWP s share of net profit from equity accounted investments until after the Reallocation Date when, at current rates, the tax rate would be 35% Cash flow assumptions Net Operating Cashflow comprises EBITDA adjusted for cash distributions from the US wind farms, net interest paid, movements in working capital and the prepayment of operating and maintenance expense for Lake Bonney Stage 1 and Alinta Wind Farm. Net Investing Cashflow relates to the payments required to complete construction of the Alinta Wind Farm and Niederrhein Wind Farm as well as the acquisition of the remaining three wind farms in the Olivo Portfolio and the 80% investment in BBWPUS. Capital Raising from the Offer is the cash raised net of transaction costs. Net proceeds / (repayment) of borrowings relates to the debt funding required for the investing activities noted above. Distributions to Securityholders is the forecast Distribution per Stapled Security times the number of Stapled Securities on issue. 97

100 09 FINANCIAL INFORMATION 9.9 pro ForMa directors ForeCast The Pro Forma Directors Forecast has been prepared to show the forecast financial performance and cash flows of BBWP for the year ending 30 June 2006 assuming a full operating year for all wind farms in the Initial Portfolio. This is not required for the year ending 30 June 2007 as all wind farms in the Initial Portfolio are expected to be operational for that full year. Note that the financial performance of the Framework Assets and Lake Bonney Stage 2, towards which some of the proceeds of the Offer may be applied, are not included in the Director s Forecast or the Pro Forma Directors Forecast due to the current stage of development and/or the prospective nature of an acquisition of any such assets. The Framework Assets and Lake Bonney Stage 2 are referred to in Section 5.2 and 5.5. Specifically, the Directors Pro Forma Forecast has been prepared on the basis set out in Section 9.8 above including the assumptions that: the Offer occurred on 30 June 2005 and the Offer proceeds, net of the total transaction costs incurred in relation to the Offer, are available to BBWP as at that date 12 months operations for each of the Alinta Wind Farm, all 6 wind farms in the Olivo Portfolio and Niederrhein; 12 months of interest expense under the Debt Facility 12 months of corporate costs including the Base Fee. pro Forma directors Forecast profit and loss statement Set out in Figure below is a summary of the Director s Forecast and Pro Forma Directors Forecast Profit and Loss Statement of BBWP for the year ending 30 June 2006 and, for comparison purposes, the Director s Forecast Profit and Loss Statement for the year ending 30 June Figure Pro Forma Profit and Loss Statement Pro Forma Directors Directors Directors Forecast Forecast Forecast ($ 000) Note Total product revenue 1 76, , ,279 Operating costs 2 (13,251) (16,156) (17,459) Corporate costs 3 (9,158) (12,113) (12,524) ebitda (before associate) 54,555 72,405 75,296 Share of net profit of equity accounted investments 4 2,899 3,613 4,868 ebitda (after associate) 57,454 76,018 80,164 Depreciation and amortisation 5 (19,946) (25,495) (25,995) ebit 37,508 50,523 54,169 Net borrowing costs 6 (18,188) (23,936) (22,776) profit before tax 19,320 26,587 31,393 Income tax expense (5,796) (7,976) (9,418) profit after tax 13,524 18,611 21,975 98

101 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT pro Forma directors Forecast Cash flow statement Set out in Figure below is the Pro Forma Directors Forecast Cash Flow Statement for the year ending 30 June 2006 and, for comparison purposes, the Directors Forecast Cash Flow Statement for the year ending 30 June Figure Pro Forma Cash Flow Statement Pro Forma Directors Directors Directors Forecast Forecast Forecast ($ 000) Net operating cash flow 43,254 59,773 68,506 Net investing cash flow (395,616) (395,616) Net financing cash flow Capital raising from Offer 332, ,968 Net proceeds / (repayment) of borrowings 241, ,721 (15,920) Distributions to Securityholders (47,620) (47,620) (52,546) Subtotal 526, ,069 (68,466) net increase / (decrease) in cash held 174, , Cash at the beginning of the period 110, , ,469 Cash the end of the period 284, , ,509 Notes: 2006 adjustments Note [1] Increase in Total Product Revenue of $23.7 million based on the assumption that: [a] The Olivo Acquisition completed on 30 June 2005 with a resulting increase in revenue of $6.2 million; [b] Construction on the Alinta Wind Farm was completed by 30 June 2005 with a resulting increase in revenue of $16.2 million; and [c] Construction on the Niederrhein Wind Farm was completed by 30 June 2005 with a resulting increase in revenue of $1.3 million. Note [2] Increase in operating costs of $2.9 million as a result of the items in Note [1]. Note [3] Increase in corporate costs of $2.9 million due to: [a] Increase in Base Fee of $1.4 million for the period between 30 June 2005 and the date of the Offer Document. [b] Increase in corporate overheads of $1.5 million for period between 30 June 2005 and the date of the Offer Document. Note [4] Assumes the US Acquisition completes on 30 June 2005 with an increase in share of net profit from equity accounted investments of $0.7 million. Note [5] Additional depreciation and amortisation of $5.5 million due to the assumption of a full operating year for each of the Alinta Wind Farm, Olivo Portfolio and Niederrhein; Note [6] Increase in net borrowing costs comprised of: [a] Additional Debt Facility debt service of $1.0 million for period between 30 June 2005 and the date of the Offer Document. [b] Additional interest expense of $8.3 million due to the assumption of a full operating year for each of the Alinta Wind Farm, Olivo Portfolio and Niederrhein. [c] Less the interest earned on the cash raised for the Framework Assets and Lake Bonney Stage 2 of $3.5 million prospective acquisitions of Wind FarM projects BBWP s objective is to improve Securityholder wealth over time through the acquisition and superior operational and capital management of assets which fit within the investment strategy as set out in Section 2.3. At the time of listing, BBWP has identified a potential pipeline of acquisitions of wind farm projects in the US and Europe that, subject to these opportunities meeting BBWP s investment strategy, are expected to be consummated over the next 12 to 18 months. BBWP is proposing to raise around $246 million (and potentially up to $281 million under the Oversubscribed Offer) representing the capital investment estimated by BBWP to be required for these prospective projects. Other opportunities may also present themselves during this period in these jurisdictions and in other countries. The wind farm projects and potential opportunities described below are not included in the Directors Forecast or Pro Forma Directors Forecasts due to the current stage of their development or the prospective nature of individual wind farms as acquisition targets. It is possible that one or more of these projects may not proceed. In that event, BBWP will use the capital raised to pursue other wind farm acquisition opportunities. In addition, depending upon the structure, scale and timing, future wind farm projects may be subject to obtaining regulatory approvals or waivers or Securityholder approval before they can proceed. The wind farm projects listed below are an important component of BBWP s medium term growth strategy through aggregating individual wind energy generation assets into a geographically diversified portfolio with a view to 99

102 09 FINANCIAL INFORMATION achieving economies of scale and managing risk. As the number of assets under management increases, opportunities increase to grow Securityholder wealth through operational and capital management techniques such as securing competitive cost of capital relative to small industry participants. lake Bonney stage 2 This wind farm project is to be located adjacent to Lake Bonney Stage 1, near Millicent in South Australia. The wind farm is expected to comprise about 53 turbines and to have a long term mean net annual electricity output of approximately 501 GWh. Pursuant to the LB2 Acquisition Agreement, BBWP has acquired indirectly 100% of the shares in LB2 Co (refer to the pro forma balance sheet in Appendix 1). The LB2 Vendors are obliged to take steps to develop LB2 to the point of LB2 Financial Close within 12 months of the date of the LB2 Acquisition Agreement (which may under certain circumstances be extended). At LB2 Financial Close, BBWP would need to meet project funding obligations and potentially to pay additional consideration to the LB2 Vendors pursuant to purchase price adjustment mechanics contained in the LB2 Acquisition Agreement. These obligations are referred to in Section Us Framework assets BBWP (US) LLC, a subsidiary of BBWPL, has entered into an agreement with BBWE to acquire an economic interest equal to 62.5% of Babcock & Brown s Class B Membership interests in a further 4 wind farms located in the US, subject to certain conditions being satisfied. BBWP (US) LLC and BBWE have also agreed to negotiate in good faith for the acquisition by BBWP (US) LLC of the remaining interest. The estimated total capacity of these wind farms is 216MW. As with the US Assets which are the subject of the US Acquisition, the agreement contemplates that BBWP would acquire an interest in each of these wind farm assets shortly after the start of operations (expected to be in the first half of 2006). spanish Framework assets BBWPL has entered into a Framework Agreement with B&B Uk under which B&B Uk will give to BBWPL rights and obligations corresponding to rights and obligations under an agreement between B&B Uk and Gamesa Energía S.A. ( gamesa ) to acquire from Gamesa wind farms in Spain with a total installed capacity of up to 450MW over the next 3 years, subject to certain conditions being met. Gamesa is a Spanish listed company with a global network of offices that is one of the world s largest manufacturers and suppliers of technologically advanced products and services in the renewable energy sector. german Framework agreement BBWPL has entered into a Framework Agreement with B&B Germany under which B&B Germany will pass through to BBWPL rights under an arrangement B&B Germany has in place with Renerco Renewable Energy Concepts AG ( renerco ). Under this Framework Agreement, BBWPL will benefit from rights of first refusal in relation to the acquisition of wind farms in Germany developed by Renerco in the period to the end of Renerco is a German company that provides development and operation services for renewable energy projects, including wind energy, in Germany and in other European countries sensitivity analysis The Directors Forecast is based on certain assumptions about future events and actions. Potential investors should be aware that future events cannot be predicted with certainty and as a result deviations from the Directors Forecast in this Offer Document are to be expected. The changes in the key variables set out in the sensitivity analysis below are not an exhaustive list of the range of variations that may be experienced over the Forecast Period and accordingly care should be taken in interpreting these sensitivities. The sensitivity analysis is intended as a guide only and movements in one assumption may have offsetting or compounding effects on other variables, the effects of which are not reflected in the sensitivity analysis results that are shown below. Further, BBWP would typically respond to any material adverse change in conditions by taking action it considered appropriate to minimize, to the extent possible, any adverse effect on earnings and distributions and the effect of this mitigating action is also not included in the following sensitivity analysis. 100

103 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Wind resource and sensitivity of prediction The prediction of the Wind Resource, its speed, direction and its distribution across time is described in Section 6.4. The impact on the Directors Forecast of wind energy being produced at the P75 and P90 net output levels for each wind farm project is set out in Figure below. pricing sensitivity of the spanish wind farms In Spain, generators of electricity from renewable energy sources can choose between enter into bilateral contracts under the fixed tariff regime or to offer their electricity to a wholesale market (which is operated by OMEL) and obtain a legislated premium and bonus. A sensitivity analysis has been performed assuming a lower market option price than that assumed in the Directors Forecast and the results are illustrated in Figure below. interest rates BBWP finances the majority of its investments with project or corporate debt provided by third party financiers. If the debt has a floating interest rate, an increase in interest rates could impact the value of BBWP s equity investment and also increase the cost of debt service. The effect of a +/- 1% change in interest rates is set out in Figure below. Foreign exchange rates There is a risk that distributions from BBWP s overseas investments to Australia are exposed to movements in foreign exchange rates. The impact of a +/- 5% change in the A$/US$ exchange rate and the A$/7 exchange rate is set out in Figure below. sensitivity results Set out in Figure below is the impact of a change in the above key variables on the Directors Forecast EBITDA and NPAT for the years ending 30 June 2006 and 2007 respectively. Figure Senstivity Table Impact on 2006 Impact on 2007 EBITDA NPAT EBITDA NPAT ($ 000) (after associate) (after associate) P75 (Total net output production = 2,056.6 GWh) (4,627) (3,315) (6,948) (5,148) P90 (Total net output production = 1,944.3 GWh) (8,883) (6,495) (12,585) (9,436) Low market price scenario for Olivo Portfolio (4,085) (2,930) (4,999) (3,753) + 1% in interest rates 8 1, ,981-1% in interest rates (8) (1,154) (44) (1,934) + 5% change in A$/ US$ rate (98) 7 (181) 17-5% change in A$/ US$ rate 108 (9) 200 (18) + 5% change in A$/7 rate (1,729) (362) (2,180) (486) - 5% change in A$/7 rate 1, , Caution should be taken in drawing conclusions from the P75 and P90 scenarios above because it is unlikely that each individual wind farm in the Initial Portfolio will achieve the P75 or the P90 level simultaneously. BBWP has engaged an independent adviser to provide an estimate of the total net production of the Initial Portfolio after taking into consideration the portfolio effect (refer to Section 6.4 and Figure for details on the portfolio effect ). Refer to Section for risks associated with estimating the wind and its variability. The potential benefits of the portfolio effect illustrated by the independent analysis are: The expected output generated at the Portfolio P75 level for the Initial Portfolio is 2.9% higher than the sum of the P75 levels for individual wind farm projects in the Initial Portfolio. 101

104 09 FINANCIAL INFORMATION The expected output generated at the Portfolio P90 level for the Initial Portfolio is 5.9% higher than the sum of the P90 levels for individual wind farm projects in the Initial Portfolio. This benefit is expected to become increasingly important to BBWP as its portfolio grows pro ForMa BalanCe sheet The Pro Forma Balance sheet of BBWP as at 30 June 2005 prepared under A-IFRS is set out in Figure below. Details of the adjustments are set out in Appendix 1. Figure Pro Forma Balance Sheet as at 30 June 2005 Actual 2005 Pro Forma 2005 ($ 000) A-IFRS A-IFRS Assets Cash 110, ,761 Other current assets 26,341 37,794 Property, plant and equipment 399, ,020 Equity accounted investment 83,200 Intangibles 22,817 98,393 Other non-current assets 25,081 33,481 total assets 584,230 1,153,649 Liabilities Current interest bearing liabilities 185, ,107 Other current liabilities 27,977 27,977 Non current interest bearing liabilities 188, ,442 Other non current liabilities 18,027 18,027 total liabilities 420, ,553 net assets 164, ,096 Total parent equity 155, ,096 Total outside equity interest 8,505 total equity 164, ,096 number of stapled securities ( 000s) 162, ,165 Notes to the Pro Forma Balance Sheet The Pro Forma Statement of Financial Position reflects the financial position of BBWP at 30 June 2005 under A-IFRS, adjusted for the following. Refer to Appendix 1 for more detail: Proceeds of Offer: $333.0 million, being million Stapled Securities at an Offer Price of $1.40 per Stapled Security, net of transaction costs (not including pre-offer related transactions costs) of $28.0 million Acquisitions relating to the Initial Portfolio: the US Acquisition, the Olivo Acquisition (including the utilisation of the Debt Facility), the purchase of the remaining 25% interest in the Alinta Wind Farm pursuant to the Walkaway Acquisition Agreement and the acquisition of LB2 Co and related project development rights pursuant to the LB2 Acquisition Agreement Debt Facility: repayment of bridge loan relating to Niederrhein Wind Farm 102

105 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 9.13 distribution policy It is the current intention of the Directors to make Distributions half-yearly out of available cash after meeting debt obligations and retaining such sums as the Directors determine may be required to meet working capital or other funding requirements of the business. However, the Directors are under no obligation to make a Distribution and the amount of any Distribution will be reviewed by the respective Directors of each of BBWPL, BBWPS and BBWPB half-yearly. Distributions by BBWPT may comprise taxable income and tax deferred distributions (return of capital). Over the Forecast Period, it is expected that Distributions of Unit capital to Securityholders will be made on a tax deferred basis. The potential tax treatment of Distributions to Australian residents is set out in the Independent Tax Report in Section The Directors will consider prevailing circumstances when determining the weighting between interim and final Distributions and will endeavour to make such weighting as even as possible but there can be no assurance that this will be the case and accordingly weighting may vary from time to time. The Directors can give no assurance for the Financial Years ending 2006 or 2007 or for any future period regarding the payment of Distributions or the extent of payout ratios, as actual events might differ from the assumptions used in assessing the anticipated ability of BBWP to pay the Forecast Distributions. The Directors anticipate that the first Distribution will be paid in March 2006 and half-yearly thereafter, in arrears, in respect of the preceding six month period. The first Distribution will be in respect of the six month period from 30 June 2005 to 31 December Shareholders are expected to receive distributions from BBWPT and dividends from BBWPL and BBWPB. Dividends from BBWPL may be franked to the extent that franking credits are available. However, no guarantee can be given about the payment of Distributions, the level of franking, or the pay out ratio for any period as these matters depend upon the ability of BBWP to make future investments, profitability of operation and investments, the performance of BBWPL, BBWPB and BBWPT and the future financial and taxation position of BBWP. BBWP forecasts payment of a total Distribution to Securityholders for the period to 30 June 2006 of $48 million, equivalent to approximately 10.2 cents per Stapled Security. This represents an annualised cash yield of 7.25% 1 on the Offer Price. BBWP expects to undertake further investments in the period to 30 June 2007 which may affect the forecast Distribution to Securityholders. See Section 9.8 for the assumptions on which these forecasts are based. Figure Forecast Distributions FY 2006 FY 2007 Forecast Distribution per Stapled Security (cents) Dividend (fully franked) per BBWPL Share (cents) Tax deferred per Unit (cents) Dividend per BBWPB Share (cents) Forecast yield % % Note: 1 Calculated as if Stapled Securities are acquired at 1 July Based on the Offer Price distribution reinvestment plan The Directors may implement a distribution reinvestment plan, on terms determined by the Directors from time to time, for cash Distributions paid by BBWP to be reinvested by way of subscription for Stapled Securities. The Directors may amend, suspend or terminate any distribution reinvestment plan as and when they think fit. 103

106 09 FINANCIAL INFORMATION 9.14 Foreign exchange rate Hedging policy The global investment mandate of BBWP and the inclusion in the Initial Portfolio of wind energy generation assets outside Australia may expose BBWP and Securityholders to movements in foreign currency exchange rates. BBWPL has hedged its US dollar exchange rate exposure in relation to part of the funds raised under the Offer which are to be used to fund the cash consideration for the US Acquisition (see Section ). BBWP currently intends to adopt a policy in respect of hedging foreign currency exchange rate risk as follows: Debt funding, if any, provided by banks to a wind farm asset is anticipated to be sourced in local currencies creating a natural currency hedge at that asset level BBWP may fund its capital investments in the local currency in which the underlying asset operates and, where BBWP chooses not to adopt this approach, BBWP will consider hedging against movements in the relevant foreign currency. Various factors would be taken into account such as the size of the investment, the return profile of the investment and the anticipated percentage ownership of BBWP in the relevant investment BBWP intends to hedge its foreign exchange exposure associated with equity distributions from overseas to Australia in a manner approved by the relevant Boards from time to time. The hedging policy will be reviewed on a regular basis to ensure that the risks associated with movements in foreign exchange rates are being appropriately managed BorroWing and interest rate policy A significant portion of the funding of wind farm assets is expected to be sourced from third party debt providers. The debt providers would lend to the specific wind farm asset and typically require security over only those wind farm assets. In general and consistent with the position in the Initial Portfolio (other than in relation to the US Assets where there is typically no long term debt funding), it is the current intention for all third party debt financing at the wind farm asset level to be full recourse to that asset but limited in recourse to BBWP and its other assets. Floating rates of interest are typically hedged for borrowings at the wind farm asset level. The Debt Facility available to BBWPL is a 3 year secured debt facility. BBWPL is required to partly hedge interest rates on amounts drawn under the Debt Facility for the term of the facility. The ratio of external debt to equity is currently relatively low at the BBWP stapled entity level. In time, BBWP may seek to increase the level of external debt (proportionate to the level of equity) raised at the BBWP stapled entity level. For more information about contracts relating to borrowings see Section and

107 10 investment risks Potential investors should be aware that the market price and liquidity of the Stapled Securities, and Distributions in respect of the Stapled Securities, may be influenced by a number of factors. The risks set out in this Section, and other risks not referred to, may in the future materially affect the financial and operating performance of BBWP. This may in turn have a material adverse effect on the value of an investment in BBWP. Before making an investment decision, you should carefully consider the likely nature, probability and materiality of the risks described in this Section, as well as the other information in this Offer Document, and whether the Offer is a suitable investment for you in light of your individual objectives, financial circumstances and needs. Past performance is not an indication of future performance. An investment in BBWP is subject to a number of risks including those that apply generally to any investment, those that are specifically associated with wind farm assets, those specifically associated with BBWP and those specifically associated with particular assets of BBWP. Some of these risks can be mitigated by appropriate action, safeguards and procedures. However, many are outside BBWP s control and cannot be mitigated. There is no guarantee that forward looking statements will turn out to be accurate, that the forecasts contained in the financial information set out in Section 9 and elsewhere in this Offer Document will be met or that Distributions will be paid. This Section describes the key risks considered by the Directors to be applicable to an investment in BBWP. However, it is not an exhaustive list of all possible risks associated with an investment in BBWP. References to BBWP typically also include the entities or the affected entity owned by it general risks stock market investments There are risks associated with any stock market investment. These include: the Stapled Securities may trade on the stock market above or below the Offer Price as the Stapled Securities have not previously been listed, there is no trading history for the Stapled Securities and therefore no indication of how the Stapled Securities will trade on the stock market or of the liquidity of that market the market price of the Stapled Securities may be affected by factors unrelated to the operating performance of BBWP, such as those listed under the heading General economic risks below, investor sentiment, Australian and international stock market conditions, and the performance of other renewable energy businesses and assets. The stock prices for many listed entities have in recent times been subject to wide fluctuations, which in many cases may be a reflection of a diverse range of influences not specific to that listed entity general economic risks Examples include: Changes in economic conditions and outlook in Australia and internationally Changes in Australian or international government, industrial, fiscal, monetary or regulatory policies Changes in interest rates, exchange rates or rates of inflation International conflicts or acts of terrorism inflation risk BBWP s equity returns may be affected by changes in the rate of inflation interest rate risk Like many businesses which borrow, BBWP and the Wind Farm Assets are exposed to adverse interest rate movements, which may increase the financial risk inherent in its businesses and reduce the returns available to investors. While interest rate hedging can be used to mitigate this risk, it will be at the discretion of the Directors of BBWP as to what proportion of any interest rate risk is hedged and the duration of that hedging. Hedging does not remove interest rate risk. It is unlikely that all interest rate risk will be fully hedged. 105

108 10 INVESTMENT RISkS Foreign exchange risk Given the global nature of its business, BBWP will be exposed to adverse foreign exchange rate movements that may increase the financial risk inherent in its businesses and returns available to investors. BBWP may choose to borrow in the local currency of a particular asset to mitigate its exposure or to enter into foreign exchange rate hedging. While these measures can be used to mitigate this risk, the risk of adverse foreign exchange rate movements cannot be removed. It will be at the discretion of the Directors of BBWP as to what proportion of foreign exchange rate risk is hedged and the duration of that hedging Force majeure risk BBWP is exposed, like most businesses, to force majeure risks, namely events beyond its or someone else s control such as acts of God, fire, flood, earthquakes, war, terrorism and strikes. These events may adversely affect its or one of its counterparty s ability to perform its obligations until the force majeure event ceases and its consequences are remedied. Some contracts may give the other party remedies, including the ability to terminate the contract if the force majeure event is incapable of remedy within a specified time period. Compensation may not be payable. Some force majeure risks are also uninsurable accounting standards risk Accounting Standards may change. This may necessitate a change in the accounting policies currently adopted by BBWP or entities owned by it. Changes in the Accounting Standards may affect the reported net financial performance and financial position of BBWP in future periods industrial relations risk Industrial action involving employees or third parties may disrupt the operations of BBWP and entities owned by it accidents risk Notwithstanding the availability of any insurance, accidents that give rise to personal injury, loss of life, damage to property, disruption to services and economic loss may disrupt the operations of BBWP and reduce returns to investors risks associated WitH Wind FarM assets Wind variability In relation to wind farms in which BBWP has invested, expert advisers have made energy production forecasts on the basis of long term average levels of wind and the amount of energy which could be produced from such wind. Fluctuations in the level of wind occur on a short term basis (daily, monthly and seasonal variations) and a long term basis (climate change). Global warming may also accelerate climate change. These fluctuations in the wind will affect the amount of energy produced by a wind farm project and the revenue generated by it, and if the amount of energy produced is reduced, this is likely to be to the detriment of BBWP Forecasts of energy production from wind BBWP or the developers from whom BBWP acquires a wind farm project engage expert advisers to forecast the amount of wind at a wind farm site and to report on the expected energy production and associated uncertainties surrounding these forecasts. This advice is used as the basis for financial forecasts, and to establish ranges for sensitivity analysis, by BBWP and debt financiers of a wind farm project. While wind energy production can be forecast by analysing historical data, there is no guarantee that any particular or minimum levels of energy production will occur. In addition, if the forecasted ranges of wind and energy production in the expert s advice are inaccurate, this may require the financial forecasts to be revised which may have an adverse effect on the wind farm project and in turn on BBWP public attitudes to wind farms Public attitude towards the visual, acoustic and environmental impact of renewable energy projects, including wind farms, affects the location and number of wind farms in any given area. Historically, communities have been particularly concerned about things like the appearance and location of wind farms, the noise made by them and their potential environmental impact such as on local bird populations. The attitude of communities to these and other aspects of renewable energy projects, including wind farms, may change over time. These changes, and any consequential changes to government policy and the regulatory environment, may be positive or negative for BBWP. 106

109 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Construction risk An investment by BBWP in a wind farm project under construction will expose it to construction risks. These include the project not being completed on time and within budget or to the agreed specifications. While BBWP attempts to allocate such risks to constructors under fixed price fixed time construction contracts, not all such risks are able to be allocated to the construction contractors. Accordingly, delays in completion of a project and the resultant increase in funding costs and delays in the commencement of cash flows, increases in the capital needed to complete construction, and an insolvency of the head contractor, a major subcontractor and/or a key equipment supplier, can all potentially have an adverse impact on BBWP as an investor in the project. The experience, reputation and financial, human and technical resources of the head contractor, key subcontractors and major equipment suppliers for a project are key factors in determining the likelihood of the timely completion of the project for the agreed price. Ensuring the construction contractor has satisfactory financial resources to support its liquidated damages, performance obligations, indemnities and self-insurance obligations under the construction contract are also important considerations technology risk There is a risk of technology failure in the technologies used in a wind farm project. If this occurs, it could have a material adverse effect on that project and in turn on BBWP. There is also the risk of technology redundancy due to the long-term nature of BBWP s projects. This risk is mitigated by the use of technology from leading international suppliers and manufacturers, ensuring regular maintenance is undertaken and contracting operations and maintenance to experienced industry practitioners general operation risk Infrastructure projects, such as wind farms, are exposed to numerous operational risks including the impact of force majeure events (see above), plant breakdowns, electricity network and other utility service failures, and other unanticipated events. The cost of repairing or replacing damaged assets may be considerable, while repeated or prolonged interruption may result in termination of contracts, substantial litigation and damages or penalties for regulatory or contractual non-compliance, reduced cash flows and increased funding costs. Moreover, such amounts may not be recoverable under insurances and, in relation to network failures, network service providers and market operators may also benefit from limitations of liability reducing the quantum of any recovery of damages from them. If the operation expenditure is different from that projected for the wind farm project, it will affect the cash flow available from the project which may have a detrimental impact on BBWP insurance risk BBWP typically contracts out the operations and maintenance of its wind farm assets, including certain obligations to insure. BBWP may endeavour to take out appropriate additional insurances on industry terms. However, notwithstanding any insurance, risks will remain with BBWP. It will be at the discretion of the Directors as to the level and type of insurance to be secured for BBWP, its wind farm assets and additional insurances. It may not always be possible to obtain insurance on commercially reasonable terms operational & Maintenance risk Availability and performance of wind turbines and other equipment to specification is essential for projected wind farm revenues to be achieved. BBWP is exposed to a range of operational risks associated with its turbines including equipment failure, non-performance to specification, accidents, turbine damage by third parties and natural disasters. While BBWP attempts to allocate such risks to operators under operation and maintenance contracts, not all such risks are able to be allocated to contractors. Wind turbines and associated equipment also require routine maintenance in order to continue to function properly. If the level of maintenance (including capital) expenditure is different from that projected or contracted for the wind farm project, it will affect the cash flow available from the project which may have a detrimental impact on BBWP. 107

110 10 INVESTMENT RISkS transmission risk Wind farms must be connected to an electricity grid to supply electricity to customers. If a grid fails or experiences down time, the wind farm will not be able to deliver electricity to it. This may cause the wind farm to lose revenue (and potentially expose it to non performance penalties and claims from its customers under power purchase and other agreements). The owners of the grid will not usually compensate energy generators (including wind farms) for lost income due to such down time. As a generator of electricity, a wind farm is required to meet certain technical specifications in order to be connected to the grid. If the wind farm does not comply with these specifications, or ceases to comply with them, it will not be able to connect to the grid. It can also incur liabilities and penalties for the non-technically compliant transmission of electricity. It may also be at risk of having its connection to the grid terminated unless it rectifies its non-compliance Market price of electricity and renewable energy rights is volatile Demand for electricity is dependent on numerous factors including economic conditions, population growth, government policy, weather, availability and price of alternative fuels or energy sources. Demand for renewable energy rights such as RECs is dependent on mandatory requirements for such electricity to come from renewable energy sources, market demand for electricity and renewable energy rights, and their availability. Given the kinds of factors which affect demand, demand has inherent volatility. This may impact on the price of electricity and renewable energy rights positively or negatively. Although most of the Wind Farm Assets are the subject of power purchase agreements (which includes agreements to purchase renewable energy rights and other arrangements to hedge against movements in market price) which seek to mitigate much of the risk associated with movement in the market price of electricity and renewable energy rights such as RECs, these contracts have set terms of varying durations. When they expire, the relevant Wind Farm Asset may choose to enter into further agreements to seek to manage such risks for a further term. The terms and conditions of these further power purchase agreements may be more or less favourable to the relevant Wind Farm Asset than the agreements they replace. This will depend on prevailing market conditions at the time the further power purchase agreements are entered into. Depending on prevailing market conditions at the time a purchase agreement expires or when BBWP acquires an asset, BBWP may elect to enter only into purchase agreements in respect of a proportion of the relevant electricity and associated renewable energy rights. The more of BBWP s electricity and renewable energy rights which are not the subject of power purchase agreements, the greater will be its day to day exposure to the prevailing market price of electricity and renewable energy rights land title Wind farms require large areas of land to install and operate wind turbines and associated infrastructure. The rights to use the necessary land can be obtained through freehold title, leases and other rights of use. Different jurisdictions adopt different systems of land title and in some jurisdictions it may not be possible to ascertain definitively who has the legal right to enter into land tenure arrangements with the wind farm owner/operator. See Section 10.5 for specific risks associated with the land on which wind farms in the Initial Portfolio are situated and Section 6.5 for details of the various land arrangements applicable to the wind farms in the Initial Portfolio. 108

111 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 10.3 legal, regulatory and tax risks associated WitH BBWp general regulatory risks By their nature, infrastructure projects are more highly regulated than other assets and businesses. Changes to this regulatory environment (including as a result of the introduction of or changes in laws and regulations) can impose additional capital and operational obligations on BBWP or otherwise impact it adversely. In addition, a decision by an economic regulator (such as a competition authority) to regulate non-regulated assets may significantly change the economics of the asset. Infrastructure projects also require a broad range of licences and approvals, including taxation, development, financial and regulatory related licences and approvals. Certain licences and approvals will also require compliance with rules, codes and guidelines, including electricity related ones. The attachment of new or different conditions to licences and approvals or a change in the applicable rules, codes and guidelines may impose additional capital and operational obligations on BBWP or otherwise impact it adversely. Even though most licences and approvals are obtained prior to the commencement of full project operations, there is a risk that a licence or approval may not be able to be obtained or renewed (or renewed on the same terms and conditions). Similarly a licence or approval may be suspended or revoked. This may give rise to additional capital and operational obligations on BBWP or otherwise impact it adversely renewable energy regulatory risks General: Wind energy projects are generally dependent on mandatory or voluntary renewable energy or emissions trading schemes and other government initiatives for their economic viability. Typically these government initiatives or programmes are available for a specified period of time, at the end of which there is no guarantee that the relevant initiative or programme will be extended. Equally, during the term of the initiative or programme, changes in political or other attitudes may result in changes to, suspension or abolition of those initiatives or programmes, which could have a positive or negative effect on BBWP. Australia: The MRET scheme is described in Section 6.2. As revenue from RECs is a significant proportion of the revenue generated for each MWh of energy produced by wind farms in Australia, they are exposed to the continued existence of the scheme in its current form. Any changes to the MRET Scheme could be advantageous or disadvantageous to BBWP. There are currently two other Australian schemes from which wind farms might generate revenue, the NSW Greenhouse Gas Abatement Scheme (for generators in those states interconnected with the national grid) and the voluntary GreenPower Scheme. The Commonwealth Government has indicated that, at this time, it intends the MRET scheme to remain in place until 2020 but that it will not increase the target under it. After 2020 there are no guarantees that the MRET or any other similar trading schemes will exist and even before this time there is a risk of the schemes being abolished or being changed materially as a result of a change in government policy. The same risks are equally applicable to the other two schemes referred to above. This may be economically advantageous or disadvantageous to BBWP. While there may be an oversupply or an undersupply in the market for RECs and certificates the subject of the other two schemes, in the event of an oversupply, there is a risk that the market will become saturated, thereby depressing the value of such certificates, to the potential detriment of BBWP. Australian State and Territory governments are currently jointly considering implementing a national state-based emissions trading scheme. The introduction of such a scheme may be inconsistent with or overlap with the existing three schemes. This may adversely affect the Australian wind farms in which BBWP has invested and in turn BBWP. Alternatively, it may also present new opportunities. United States of America: A description of the Production Tax Credit system is set out in Section 6.2. The US Assets rely on the tax credits under this scheme for their economic viability. If the PTC were to be removed or changed in a manner which affected the US Assets, this may increase the tax payable by the companies investing in wind farms in the US so as to reduce returns available to them and thereby diminish the appeal of the US Assets as investments. As the system has only been extended to 2007, US wind farms which commence operation after that time may not have the benefit of this or other federal government incentives unless the programme is extended again or another programme is adopted. 109

112 10 INVESTMENT RISkS Spain: A description of the Special Regime in Spain is set out in Section 6.2. If the Spanish government removes or reduces any of the benefits given to wind energy producers under the Special Regime, this is likely to impact negatively on the financial performance of wind farms in that jurisdiction and that may have a consequential adverse impact on BBWP. The current regime is designed to assist Spain in its efforts to meet EU targets specified in EU directive 2001/77/EL by It is likely therefore that the current tariff regime will change at some point in the future. This may have a positive or negative effect on the financial performance of wind farms in Spain and in turn BBWP. Germany: A description of the tariffs available under the EEG is described in Section 6.2. If the tariff protection is reduced or removed under the EEG this is likely to impact negatively on the financial performance of wind farms in Germany and in turn BBWP. In addition, wind farms commissioned in Germany in the future may not get the same financial incentives as the Niederrhein wind farms located at Wachtendonk and Bocholt-Liedern kyoto and other international treaties and arrangements There are a number of international agreements or proposed agreements associated with the renewable energy industry, including the kyoto Protocol and the Asia Pacific Partnership on Clean Development and Climate. As Australia and the US have not ratified the kyoto Protocol, it is not possible for kyoto units to be obtained from the Australian or US governments (as non-signatory countries) through any linked domestic trading scheme or for kyoto units to be traded through an Australian or US registry. Further, there may be limited or no opportunities for entities that are constituted in countries that have not ratified the kyoto Protocol to participate directly in trading kyoto units. Wind farms in non-signatory countries owned by BBWP may not therefore be able to participate in the creation and trading of credits in some significant international markets. The Asia Pacific Partnership on Clean Development and Climate, to which Australia, US, China and others are parties, promotes measures to reduce greenhouse gas emissions. Unlike the kyoto Protocol, the Partnership will also promote measures that do not involve the use of renewable resources, such as technology that reduces emissions from coal-fired energy projects. There is a risk that trading schemes and incentives concerning renewable energy (including the wind farm projects in which BBWP invests) could be reduced in favour of benefits for fossil-fuel based projects, to the detriment of BBWP. Further, it is unclear what impact the failure of countries to ratify the kyoto Protocol and other international arrangements might have on existing or future renewable energy projects in those countries and in turn BBWP electricity market regulatory reviews The Australian electricity industry is undergoing reform. In particular, consultation processes are currently underway in relation to how best to deal with increased intermittent generation in the NEM (including the intermittent generation of energy produced by wind farms). As a consequence, it is possible that further capital and operating obligations will be imposed on wind farms operating in the NEM in the future. Similar discussions are also occurring in other places, such as Germany, which could have similar consequences enhancement of grid associated infrastructure Planning authorities and regulators may resist the development of associated infrastructure for future projects. For example, significant improvements in the grid networks may be required before wind farms in areas with poor grid networks will be permitted to be connected. While BBWP has connection arrangements in place in relation to existing wind farm projects this may affect investments in future wind farm projects in locations with poor grid network connection environmental laws and regulations Environmental laws and regulations affect the development and operation of infrastructure assets including wind farms. These laws and regulations impose standards, including in relation to health and environmental issues. They also impose penalties and other liabilities for violations and, in certain circumstances, impose obligations to remediate and rehabilitate current and former generating facilities and locations where operations are, or were, conducted. While due diligence is typically carried out and such factors taken into account in considering the viability of a project, there is a risk that compliance with these laws and regulations, including any changes to them, may require substantial expenditure, which may have a detrimental impact on BBWP. 110

113 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT In addition, laws and regulations applying to nature, wildlife and plants may apply to the land near or on which a wind farm is located. This may have cost implications for a wind farm if it is required to take measures to preserve the natural environment and wildlife which inhabits the area native title and indigenous rights risks Any declaration of native title or other indigenous rights in respect of land on which infrastructure assets are located may adversely affect the owner or occupier of that land. This may include BBWP as the occupier of land on which a wind farm project is located. The Native Title Act 1993 (Commonwealth of Australia) provides for a series of procedures that may need to be complied with if native title is declared on relevant land. In certain circumstances, compensation could be required to be paid to the native title holders. Infrastructure assets located on Native American tribal lands are regulated by the US Bureau of Indian Affairs ( BIA ) and Bureau of Land Management. BIA approval is required for granting rights over tribal lands and in some cases this may result in the need for environmental impact reviews. Due to tribal sovereignty in respect of tribal lands, co-ordination with the relevant tribe with respect to permits and procedures is important. BBWP owns interests in wind farm assets in Australia and will own wind farms in the US. In these jurisdictions, it is possible to claim indigenous rights to land. In the future, BBWP may acquire assets in other jurisdictions where similar rights exist. While BBWP will generally conduct due diligence in such jurisdictions to determine the extent to which it may be affected by such rights, it may not be possible to mitigate against or remove a risk associated with indigenous claims litigation risk BBWP or a Wind Farm Asset may be exposed to litigation arising from, for example, contractual or industrial disputes and environmental or occupational health and safety claims. Liability could be imposed on a Wind Farm Asset or BBWP as a consequence of any litigation and protracted litigation could affect that Wind Farm Asset or BBWP adversely special interest groups It is not uncommon for infrastructure assets to be exposed to a variety of other legal risks including legal action or submissions opposing projects in decision making processes from special interest groups who may seek to use legal processes to impede projects which they oppose taxation The information in this paragraph is general only and does not take into account your individual objectives, financial situation or needs. Securityholders should seek independent advice in relation to their individual taxation circumstances. Changes to tax legislation, both in Australia and overseas and including tax treaties between countries, may increase the amount of tax paid by BBWP or affect the treatment of tax losses that may have been, or may be, accumulated. These changes may influence both profit and loss for accounting purposes and the cash tax that BBWP has to pay. Under current Australian taxation law, BBWPT is expected to be a flow through entity for tax purposes (i.e. BBWPT itself will not have a liability to tax). However, distributions to investors will be classified between amounts that are: Taxable distributions which are taxable in the hands of investors in the year in which the entitlement to a distribution arises; and Tax-deferred distributions which are not taxable to investors when received (provided they hold their investment on capital account), but will give rise to a capital gain to the extent the distributions exceed the cost base of the Units. Where the distribution does not exceed the cost base, the distribution will reduce the cost base of the Units for the purposes of determining the amount of capital gain realised upon disposal of the Units. If BBWPT were to be considered to carry on or control a trading business, rather than the relevant amount of the distribution by BBWPT being treated as a tax-deferred distribution, the amount of the BBWPT distribution represented by accounting profit each year would be deemed to be an unfranked dividend and assessable to investors. 111

114 10 INVESTMENT RISkS The impact of any future change in law is difficult to predict in advance. Investors should be aware that if there is a legislative change to the taxation of unit trusts, any such change could affect the taxation treatment of distributions from BBWPT other risks associated WitH BBWp Borrowings risk All Wind Farm Assets (except the US Assets) utilise stand-alone project debt financings that account for the majority of the total project funding. Consequently, the wind farm assets are typically highly geared. The terms on which these debt facilities are provided are complex, and typically impose numerous obligations on the wind farm borrower and afford numerous rights and remedies to its financiers. Under the financing agreements, the ability of these borrowers to make distributions to BBWP is usually subject to numerous tests. Failure to meet these tests may result in such amounts being locked up for periods of time (which can last for a number of months) or, depending on the circumstances, being swept and applied in mandatory prepayment of the debt. This situation typically arises before an event of default occurs. Any such lock-up will have an adverse impact on the borrower s ability to make cash distributions to BBWP which may in turn have an adverse impact on BBWP s ability to make distributions to Securityholders. It is typical for the financiers providing such project debt financing to have the benefit of security over all of the assets of the wind farm. If a Wind Farm Asset borrower is in breach of its obligations under the project financing arrangements, the relevant financiers may be able to enforce their security over the wind farm assets. Any such enforcement action, including possible disposal of the wind farm by the financiers, is likely be to the material economic detriment of BBWP. In most cases, these debt facilities will need to be extended or refinanced during the life of the relevant wind farm. Depending on a number of factors including the economic environment at the time, such extension or refinancing may be on terms which are more or less advantageous to the relevant borrower and in turn BBWP. BBWP also has in place debt financing facilities of its own. These too are complex and secured, affording similar rights to its financiers as those described above. For a description of these facilities, see Section and Appendix 3. If there is insufficient cash available to BBWP to fund its obligations to its debt financiers as well as to fund distributions to Securityholders this will have an adverse impact on BBWP s ability to make distributions to Securityholders. In time, BBWP may increase the level of debt at the BBWP level proportionate to equity raised at that level. This may also increase the risk of BBWP being unable to make distributions to Securityholders Contractual risks Key customer contracts: A substantial proportion of each of a Wind Farm Asset s revenues are derived from a limited number of customers and contracts. The loss of any of these customers or contracts (due to default by them or the relevant Wind Farm Asset) may have a material adverse effect on that Wind Farm Asset and on BBWP. See Section 12.3 and Appendix 3 for a summary of material contracts and principal termination rights under them. Counterparty risks: The Wind Farm Assets have entered into a number of key commercial agreements with third parties (see Section 12.3 and Appendix 3) and may from time to time enter into further agreements. If these third parties do not meet their obligations under the agreements, this may have an adverse effect on BBWP unless it is financially compensated or can alleviate the effect by contracting with alternative parties. Change of control restrictions: Most agreements between BBWP and third parties restrict assignment and changes in control. These restrictions generally apply only in relation to the relevant wind farm company. However in certain cases these restrictions apply to BBWP as well and may be triggered by the Offer. Where this is the case, consent has been sought and obtained. Documentation risk generally: Infrastructure projects are typically governed by complex legal agreements which gives rise to higher documentation risk. As a result, there is a higher risk of things like contractual mismatches and disputes over interpretation or enforceability of contracts arising joint venture risks From time to time, BBWP may co-invest in projects with a third party. Owning an interest in an asset with co-owners imposes restrictions which do not exist where the asset is wholly owned, especially in the ability of a co-owner to make 112

115 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT decisions regarding the business without the agreement of the other co-owners. There may also be other limitations such as the inability to sell the interest without the co-owners prior consent. Unless resolved in a timely manner, disagreements between co-owners may have an adverse impact on the asset and on BBWP Bermuda entity risk BBWP is a company incorporated in Bermuda and is subject to both Bermudan and Australian law. It is possible that the requirements of Bermudan law may impose an additional regulatory burden on BBWP to its economic detriment. Particular issues arising under Bermuda law are described in Section operational independence of BBWp Prior to the Offer, certain important aspects of BBWP s operations have been managed by Babcock & Brown. These include financial, accounting, legal and investment management functions. Following the Offer and on an ongoing basis, BBWP will need to manage these functions on a stand alone basis. A failure to manage these functions effectively may have a material adverse effect on BBWP. BBWP has entered into the Management Services Agreements to assist it in the management of this risk investment risks From time to time, BBWP may make new investments. Investment valuations will be based on a number of assumptions, and rely on independent expert reports, that may subsequently prove incorrect. As a consequence the capital value and expected cash returns from investments may be less than expected to BBWP s and investors detriment diversification and acquisition risk BBWP aims to diversify its portfolio by acquiring further interests in wind farms. There is a risk that acquisition funding, or appropriate projects fitting BBWP s investment criteria, may not be secured by BBWP on a timely basis and that the objective of investment diversification or growth by acquisition is not achieved by BBWP. This could mean that BBWP is exposed to a greater extent to any failure or underperformance in any existing asset BBWp assets are generally illiquid BBWP will usually invest in assets that are not listed on a stock exchange or for which there is only a limited number of potential purchasers. As a consequence, the realisable value of an asset may be less than its apparent value Competition risks Other developers: With growth of the wind energy sector, the competition for development of new wind farm projects or investment in existing wind farms is likely to increase. Some of BBWP s assets may also be affected by the existence of competing assets owned or operated by other parties. New and replacement contracts: There can be no assurance that BBWP can renew all of its offtake contracts or win additional contracts with existing or new customers. The ability of BBWP to maintain or improve its revenues is dependent on many things, including its ability to renew contracts on favourable terms. Where BBWP is unable to renew offtake agreements for power or renewable energy rights with existing or new customers on the same or more favourable terms, the revenue from such assets may be reduced. Non-renewable energy sources: Other sources of power generation like gas and coal may become cheaper over time. If this occurs, it may make renewable energy less attractive to purchasers of energy despite the positive or negative impact of government actions on the renewable energy industry large holdings by founding investors When the Offer is completed, Babcock & Brown and Babcock & Brown Infrastructure will hold approximately 32.5%. Certain other existing Founding Investors may also hold sizeable stakes. This may result in the Stapled Securities of BBWP being tightly held or actively traded in the Stapled Securities. The respective holdings of these stakeholders may increase or decrease over time and this may affect the market price for Stapled Securities positively or negatively. Babcock & Brown has entered into various escrow arrangements in respect of Stapled Securities it holds (see Section ). If, following release of the escrow arrangements, Babcock & Brown did sell all or part of these Stapled Securities, this may affect the market price of Stapled Securities adversely. 113

116 10 INVESTMENT RISkS different types of BBWp securities Under the constitutional documents of BBWP, BBWP is able to issue types of securities or financial products which are different from BBWPL Shares, BBWPB Shares and Units. BBWP is also likely to issue further stapled securities over time. Any issue of further securities, be they the same as or different to Stapled Securities, may have the effect of diluting the stakeholding of Securityholders as at the time of listing, and may affect the market value of Stapled Securities or the returns on Stapled Securities risks associated WitH specific assets in the initial portfolio lake Bonney stage 1 Construction contract Although construction of Lake Bonney Stage 1 has been completed, Vestas Australia has proposed modifying the instrument cooling systems to ensure that the turbines will function effectively in high summer temperatures. LBWP has accepted this proposal. An initial prototype has been successful in testing and work is currently underway to modify all turbines. It is currently estimated that the modifications will be completed by November 2005 and that final testing of the modifications will be completed by February The output of turbines may be restricted on days of high temperatures until successful modification and testing has been completed by Vestas Australia. Depending upon the number of days of high temperatures that occur prior to the completion of successful modifications, such restrictions may have a detrimental impact on LBWP and a consequential impact on BBWP. ESCOSA licence ESCOSA has released a discussion paper entitled Draft Statement of Principles on Wind Farm Licensing. This statement sets out ESCOSA s position regarding the imposition of additional conditions on new generator licences for wind farms in South Australia to address concerns about intermittent electricity generation (such as that generated by wind farms). Suggestions for additional conditions include meeting additional technical standards, being registered as a scheduled generator under the National Electricity Rules and providing forecasting information. ESCOSA is also of the view that certain conditions should also apply to existing wind farms. The imposition of new conditions may affect LBWP s ability to comply with its generation licence or require additional expenditure to meet higher compliance standards which may have a detrimental impact on LBWP and a consequential impact on BBWP alinta Wind Farm (Walkaway) Electricity generation licence Holders of approvals to generate electricity under the old Electricity Act 1945 (WA) are subject to transitional provisions under the new Electricity Industry Act 2004 (WA). Under the new Act, Walkaway as the holder of an approval under the 1945 Act is to be treated in the same manner as the holder of a licence granted under the new Act for a period of 18 months from 31 December However in order to continue ongoing approval to generate electricity Walkaway must apply for a licence under the new Act prior to 31 December This is currently underway. Construction Risk The Alinta Wind Farm is under construction and therefore subject to construction risk (see Section ) olivo portfolio Land title In Spain, the system of land is complex and while there is a registration system, it is not uncommon when dealing in land to encounter what would be considered in Australia to be irregularities in land title. This includes incomplete or the absence of registrations with the land registry. There is a risk that the actual owner is not the person with whom an Olivento Company has entered into the land tenure agreement and this may give rise to the Olivento Company s rights to occupy the land being challenged. In relation to easements and surface rights to use the land, a third party purchaser will be deemed to have been given notice of the easement or surface right if there are structures erected on the land. Spanish local licences and permits The Wind Farm Assets in the Olivo Portfolio generally have most but not all local permits, licences and authorisations required to operate. However it is not uncommon in Spain for the legal entity operating wind farms to be missing 114

117 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT some local permits, licences and authorisations. Local legal advisers have confirmed that where this is the case in relation to a Wind Farm Asset in the Olivo Portfolio, these missing permits, licences and authorisations are not material. Comfort may be taken from the fact that the wind farms and their connecting infrastructures are evident to the relevant authorities where they are built and also that at the time of an application for a licence, provided all legal requirements are met, the relevant local authority has no discretion in its approval. Market Option See Section 6.2 for a description of the market option. Although the market option has the potential for higher returns, it is subject to greater price fluctuation as a higher proportion of the market price option is dependent on underlying commodity price movements in the wholesale electricity market. Deviations costs Under the Special Regime, energy producers are penalised for deviations between forecast output and actual output during each of the 48 half-hour periods of the trading day in the wholesale electricity market. This involves a quantity risk, which can be mitigated by using forecasting tools and/or by hedging quantity with a third party, and a price risk, which can be mitigated by hedging price with a third party. The Olivo Wind Farms currently have a quantity hedge with an affiliate of Gamesa but bear the full price risk. Interest rate risk The acquisition of the remaining three Olivo Wind Farms (El Redondal, Serra da Loba and El Sardon) are expected to be acquired before the end of The consideration payable by Olivento for these wind farms will be funded by a combination of equity and bank debt. The interest rate payable on the bank debt will be fixed (by means of interest rate swap contracts) at the time of the acquisition of each wind farm, whereas the amount of the consideration payable by Olivento is already determined. The equity return to BBWP from its investment in these wind farms is therefore exposed to interest rate fluctuations up to the date of the acquisition of each remaining Olivo wind farm. An increase in interest rates prior to that date could have an adverse impact on the return to BBWP niederrhein Construction Risk The Niederrhein Wind Farms are under construction and therefore subject to construction risk (see Section ) Us assets Pre-emptive rights Under the BBWPUS LLC Agreement, BBWP (US) LLC has granted pre-emptive rights over its 80% economic interest in BBWPUS to the US Vendor (described in more detail in Section ). These pre-emptive rights would, if exercised, entitle the US Vendor to re-acquire these interests for fair market value. The US Vendor would be entitled to exercise the pre-emptive rights to purchase BBWP (US) LLC s membership interest in BBWPUS if BBWP (US) LLC ceases to be a subsidiary of BBWP, or BBWP is subject to a takeover bid or scheme of arrangement which would, if successful, result in a change of control of BBWP, or if BBWP to the extent it relates to the US Assets, ceases to be managed by a Babcock & Brown entity. In these circumstances, where the US Vendor s prior consent has not been obtained and the pre-emptive rights are exercised, BBWP would cease to hold the 80% interest in BBWPUS. Back-to-back guarantees The Class A Members of a Project LLC have the benefit of a guarantee provided on behalf of Class B Members of that Project LLC in respect of any loss suffered (including loss of PTCs) as a result of a breach of the representations, warranties and change of control provisions in the Project LLC Agreement relevant to the Project LLC in which those Class A Members have invested or any other action which causes the Class A Members to cease receiving the return from the Project LLC otherwise expected (including to to be entitled to the benefits of PTCs). As a condition to the US Acquisition, BBWP will provide back-to-back guarantees under which BBWP would be required to guarantee up to 80% (64% in the case of Caprock) of any loss claimed against the provider of the original guarantees with respect to breach of duty by the Class B Member. BBWP would not be liable for any loss if such loss results from any action taken in respect of a matter which BBWP (US) LLC had a right to vote on under the BBWPUS LLC Agreement and BBWP 115

118 10 INVESTMENT RISkS (US) LLC voted against taking that action or from the failure to take any action with respect to a matter which BBWP (US) LLC had a right to vote on and voted in favour of taking that action. A claim against a BBWP guarantee would be required to be met out of assets of one or more of BBWPL or BBWPT. If the pre-emptive rights described above are triggered and exercised, this may reduce the likelihood of a claim being made against a BBWP guarantee but this risk cannot be entirely removed because while claims under the guarantee would be eliminated in relation to future breaches it would not eliminate claims under the guarantee which occurred prior to the transfer of membership. See Section for further details. Potential disposal of Caprock 20% interest As shown in Figure Babcock & Brown owns a residual 20% interest in Caprock which it may choose to sell. Babcock & Brown is entitled to dispose of that interest to any third party without the prior consent of BBWP or BBWPUS provided that the amended limited liability company agreement does not have a material adverse effect on Caprock LLC or the Investment LLC which is a Class B Member of Caprock LLC. Change of control Under the limited liability company agreements of a Project LLC, the Class A Members have the benefit of change of control clauses which are triggered by a change of manager outside the Babcock & Brown Group or a change of ownership. A change of this kind requires the prior consent of the Class A Members. The relevant limited liability company agreements provide that a change purported to be made in breach of these provisions is void and that specific performance in respect of those clauses can be sought. In addition, breach of these provisions may give rise to a claim for damages. The BBWPUS LLC Agreement also contains similar restrictions on transfers of membership interests and changes in control or management of the investment fund that controls BBWP (US) LLC s membership interest. These various restrictions are described in more detail in Sections and Economic Return The structure of the economic returns between Class A Members and Class B Members is set out in Section The type of interest which BBWP is investing in is a Class B Membership interest. The point in time at which the Reallocation Date occurs is determined by the availability of economic returns: to the Class A Members by way of tax benefits cash to the Class B Members and then cash to the Class A Members PTCs and cash are the most important factors in driving the economic return. The quantum of both PTCs and cash which is generated by the wind farm business is affected by the amount of wind at that site. If there are adverse variances in wind (i.e. less wind blows than forecast), this reduces the amount of PTCs available to the Class A Members and decreases the amount of cash available to be paid to the Class B Members (which would in turn postpone the date at which cash was started to be paid to the Class A Members). The Reallocation Date occurs when the Class A Members achieve a specified rate of return (or, if earlier, a long stop date). The longer it takes to achieve that rate of return, the later the Reallocation Date. Prior to the Reallocation Date, once the Class B Members have received in full cash equal to their initial capital, the Class B Members do not receive any cash or tax benefits (during this time these are all paid to Class A Members). The longer it takes for the Class A Members to achieve their specified rate of return, the longer the period of zero receipts from the wind farm project by the Class B Members Framework agreements General As a consequence of the terms of a Framework Agreement, BBWP may be under an obligation to acquire, at a fixed price, a wind farm that satisfies certain criteria. These criteria are intended to fix the key parameters on which the economic performance of the wind farms will depend. There is a risk that the actual economic performance of a wind farm differs from and may be worse than expected notwithstanding that the criteria have been met. 116

119 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT The fact that BBWP may be under an obligation to acquire wind farms over a period of time which may extend to a number of years means that some investment factors may change and therefore affect the economics of the investment. These include changes in any or all of the following: the terms of financing available in the project finance market, interest rates, foreign exchange rates, insurance premiums and applicable laws and regulations generally and in relation to relevant renewable energy programmes. A penalty may be payable in respect of a wind farm if it satisfies the criteria and BBWP does not acquire the wind farm. Spanish Framework Agreement Section describes the key terms of the Spanish Framework Agreement. There is a risk that B&B Uk will be unable to deliver to BBWPL the anticipated installed capacity. The ability of B&B Uk to deliver wind farms under this agreement is dependent on the original developer fulfilling its obligations to B&B Uk. This could result in BBWP investing in fewer wind farms in Spain than presently anticipated over the next 3 year period or acquiring wind farms on less favourable terms. German Framework Agreement Section describes the key terms of the German Framework Agreement. Given the right of first refusal nature of the agreement, the agreement does not oblige the counterparty to deliver a specified installed capacity of wind farms during the term of the agreement. It is possible that no wind farms are offered pursuant to this right of first refusal. US Framework Agreement Section describes the key terms of the US Framework Agreement. There is a risk that BBWE will be unable to contribute to BBWPUS all or a part of the anticipated 05 Membership Interests in Wind Investment 3. This could result in US SUB being unable to acquire the interests in the 4 wind farms which it is seeking to acquire by having entered into the US Framework Agreement. There is also a risk that a wind farm project meets the criteria established in the US Framework Agreement and yet it is considered unattractive as an investment by US SUB. In this scenario, US SUB would still be required to acquire the relevant membership interest in Wind Investment 3 which relates to the wind farm project. A penalty may be payable if US SUB does not acquire the relevant Wind Investment 3 membership interest where a wind farm meets the criteria set out in the US Framework Agreement. As noted in Section , US SUB has granted pre-emptive rights over its 80% economic interest in BBWPUS to the US Vendor. These would apply in respect of the US Framework Assets. Upon BBWPUS acquiring Wind Investment 3, BBWPL and BBWPS (as Responsible Entity) will be required to provide guarantees similar to the Back-to-Back Guarantees referred to in Section in relation to wind farms in which Wind Investment 3 holds membership interests other Lake Bonney Stage 2 Section describes the key terms of the LB2 Acquisition Agreement. There is a risk that, despite their best endeavours, the LB2 Vendors may be unable to procure LB2 Financial Close by 14 March However, in the event that LB2 Financial Close is not achieved by this date, BBWPL will be entitled to transfer the Holding Companies of LB2 Co back to each of the LB2 Vendors and will be entitled to direct that the LB2 Consideration Securities are sold (in which case the proceeds will be remitted to BBWP) or cancelled. There is a risk that the parties to the LB2 Acquisition Agreement disagree with the valuation determined pursuant to the purchase price adjustment mechanics on or around LB2 Financial Close. In the event the disagreement cannot be resolved, an independent valuer can be appointed to calculate the purchase price adjustment on behalf of the parties. Although the independent valuer would be governed by the procedures and standards contained in the LB2 Acquisition Agreement, there is a risk that despite compliance with those procedures, the valuation arrived at subsequently proves to have not reflected its true market value at that time. This may be to BBWP s benefit or detriment. While, in the event of LB2 Financial Close, the LB2 Vendors are entitled to recover the actual reasonable costs incurred in reaching LB2 Financial Close provided they are incurred on arm s length commercial terms, there is a risk that, in order to achieve LB2 Financial Close, it will be necessary to expend more money than presently anticipated. In the event that costs exceed $10million, prior consent of BBWP is required. 117

120 11 EXPErtS reports THIS FINANCIAL SERVICES GUIDE FORMS PART OF THE INDEPENDENT ACCOUNTANT S REPORT Issue date: 15 February 2005 (version 3) 1. Ernst & Young Transaction Advisory Services Ernst & Young Transaction Advisory Services Limited ( Ernst & Young Transaction Advisory Services or we, or us or our ) has been engaged to provide general financial product advice in the form of an Independent Accountant s Report ( Report ) in connection with a financial product of another person. The Report is to be included in documentation being sent to you by that person. 2. Financial Services Guide This Financial Services Guide ( FSG ) provides important information to help retail clients make a decision as to their use of the general financial product advice in a Report, information about us, the financial services we offer, our dispute resolution process and how we are remunerated. 3. Financial services we offer We hold an Australian Financial Services Licence which authorises us to provide the following services: financial product advice in relation to securities, derivatives, general insurance, life insurance, managed investments, superannuation, and government debentures, stocks and bonds; and arranging to deal in securities. 4. General financial product advice In our Report we provide general financial product advice. The advice in a Report does not take into account your personal objectives, financial situation or needs. You should consider the appropriateness of a Report having regard to your own objectives, financial situation and needs before you act on the advice in a Report. Where the advice relates to the acquisition or possible acquisition of a financial product, you should also obtain an offer document relating to the financial product and consider that document before making any decision about whether to acquire the financial product. We have been engaged to issue a Report in connection with a financial product of another person. Our Report will include a description of the circumstances of our engagement and identify the person who has engaged us. Although you have not engaged us directly, a copy of the Report will be provided to you as a retail client because of your connection to the matters on which we have been engaged to report. Ernst & Young Transaction Advisory Services Limited ABN Australian Financial Services Licence No Liability limited by the Accountants Scheme, approved under the Professional Standards Act 1994 (NSW). 118

121 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Page 2 5. Remuneration for our services We charge fees for providing Reports. These fees have been agreed with, and will be paid by, the person who engaged us to provide a Report. Our fees for Reports are based on a time cost or fixed fee basis. Our directors and employees providing financial services receive an annual salary, a performance bonus or profit share depending on their level of seniority. Ernst & Young Transaction Advisory Services is ultimately owned by Ernst & Young, which is a professional advisory and accounting practice. Ernst & Young may provide professional services, including audit, tax and financial advisory services, to the person who engaged us and receive fees for those services. Except for the fees and benefits referred to above, neither Ernst & Young Transaction Advisory Services, nor any of its directors, employees or associated entities receive any fees or other benefits, directly or indirectly, for or in connection with the provision of a Report. 6. Associations with product issuers Ernst & Young Transaction Advisory Services and any of its associated entities may at any time provide professional services to financial product issuers in the ordinary course of business. 7. Responsibility The liability of Ernst & Young Transaction Advisory Services is limited to the contents of this Financial Services Guide and the Report. 8. Complaints process As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial services. All complaints must be in writing and addressed to the Compliance and Legal Manager and sent to the address below. We will make every effort to resolve a complaint within 30 days of receiving the complaint. If the complaint has not been satisfactorily dealt with, the complaint can be referred to the Financial Industry Complaints Service or the Insurance Brokers Disputes Limited for general insurance product advice. Contacting Ernst & Young Transaction Advisory Services Compliance and Legal Manager Ernst & Young 680 George Street Sydney NSW 2000 Telephone: (02) Contacting the Independent Dispute Resolution Schemes: Financial Industry Complaints Service Limited PO Box 579 Collins Street West Melbourne VIC 8007 Telephone: Insurance Brokers Disputes Limited Level William Street Melbourne VIC 3000 Telephone This Financial Services Guide has been issued in accordance with ASIC Class Order CO 04/

122 11 EXPERTS REPORTS 11.1 independent accountant s HistoriCal FinanCial information report 26 September 2005 The Directors Babcock & Brown Wind Partners Pty Limited Level 39, The Chifley Tower 2 Chifley Square Sydney NSW 2000 The Directors Babcock & Brown Wind Partners (Bermuda) Ltd Level 39, The Chifley Tower 2 Chifley Square Sydney NSW 2000 The Directors Babcock & Brown Wind Partners Services Limited as responsible entity for the Babcock & Brown Wind Partners Trust Level 39, The Chifley Tower 2 Chifley Square Sydney NSW 2000 Dear Sirs Independent Accountant's Report on Reviewed Historical Pro Forma Financial Information We have prepared this Independent Accountant's Report (the Report ) on the historical pro forma financial information of Babcock & Brown Wind Partners ( BBWP ) for inclusion in a combined prospectus and product disclosure statement to be dated on or about 26 September 2005 (the Offer Document ) relating to the initial public offering (the IPO ) of securities issued by BBWP which is comprised of shares in Babcock & Brown Wind Partners Limited ( BBWPL ), shares in Babcock & Brown Wind Partners (Bermuda) Ltd (BBWPB) and units in Babcock & Brown Wind Partners Trust ( BBWPT ), (such shares and units the stapled securities ). Scope We have been requested to prepare a report reviewing the following information for inclusion in the Offer Document: the historical consolidated Balance Sheet, Profit & Loss Statement and Cash Flow Statement of BBWP for the periods ended 30 June 2005 and 2004 prepared under applicable Accounting Standards in Australia ( AGAAP ); the historical pro forma consolidated Balance Sheet as at 30 June 2005 and the summary historical pro forma consolidated Profit & Loss Statement and Cash Flow Statement of BBWP for the periods ended 30 June 2005 and 2004 prepared under Australian equivalents to International Financial Reporting Standards ( AIFRS ); and accompanying notes information. Liability limited by the Accountants Scheme, approved under the Professional Standards Act 1994 (NSW). 120

123 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT (together the Historical Pro Forma Financial Information ). The Historical Pro Forma Financial Information in relation to the BBWP is included in Sections 9.5, 9.6, 9.12 and Appendices 1 & 2 of the Offer Document. The financial information for the periods ended 30 June 2005 and 2004 has been derived from the audited financial statements of BBWP, prepared under AGAAP. Ernst & Young issued an unqualified audit opinion on those financial statements. In preparing the financial statements the effects of all transactions between entities within the BBWP group have been eliminated. The Historical Pro Forma Financial Information does not purport to present the results of operations and cash flows of BBWP had it been operating as a public listed stapled entity during the periods indicated or to project results of operations or cash flows for any future period. The Historical Pro Forma Financial Information has been adjusted to reflect certain one-off transactions and the internal restructure required to facilitate the IPO (the Pro Forma Adjustments ). In particular the historical pro forma consolidated Balance Sheet has been adjusted to give effect to: the internal restructure required to facilitate the IPO and the intended structure of BBWP following the IPO; the raising of new capital as part of the IPO; the acquisition of entities which were not historically controlled by BBWP but will form part of the BBWP group following the IPO; the issue of securities to fund certain acquisitions; the raising of debt to fund certain acquisitions and repayment of debt; and the anticipated costs of the IPO and internal restructure. Details of the Pro Forma Adjustments are set out in Appendix 1 of the Offer Document. Responsibility The Directors are responsible for the preparation and content of the Historical Pro Forma Financial Information including determination of the Pro Forma Adjustments. It is our responsibility to review the Historical Pro Forma Financial Information and report on it. We disclaim any responsibility for any reliance on this Report or the financial information to which it relates for any purpose other than that for which it was prepared. This Report should be read in conjunction with the full Offer Document. Review of Historical Pro Forma Financial Information We have performed a review of the Historical Pro Forma Financial Information in order to state whether on the basis of the procedures described, anything has come to our attention that would indicate that the Historical Pro Forma Financial Information as set out in Sections 9.5, 9.6, 9.12 and Appendices 1 & 2 is not presented fairly in accordance with the recognition and measurement requirements (but not all of the disclosure requirements) of applicable Accounting Standards in Australia and AIFRS, as applicable. 121

124 11 EXPERTS REPORTS Our review of the Historical Pro Forma Financial Information was conducted in accordance with the Australian Auditing and Assurance Standard AUS 902 Review of Financial Reports. We made such inquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances including: a review of work papers, accounting records and other documents; analytical procedures on the Historical Pro Forma Financial Information of BBWP for the relevant historical period; a review of the reasonableness of the Pro Forma Adjustments as a basis for compiling the historical pro forma consolidated Balance Sheet; a comparison of consistency in application of the recognition and measurement principles in Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies adopted by the BBWP disclosed in note 2 of Appendix 2; a review of the adjustments used to translate the historical financial information prepared under AGAAP to AIFRS; and enquiry of Directors, management and others. These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. Review Statement Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that the Historical Financial Information does not present fairly: a) (i) the historical consolidated Profit & Loss Statements and historical consolidated Cash Flow Statements of BBWP for the periods ended 30 June 2004 and 2005; and (ii) the historical consolidated Balance Sheet of BBWP as at 30 June 2005; in accordance with the recognition and measurement principles (but not all of the disclosure requirements) prescribed in Accounting Standards and other mandatory professional reporting requirements in Australia, and accounting policies adopted by BBWP disclosed in note 2 of Appendix 2. b) (i) the summary historical pro forma consolidated Profit & Loss Statements and summary historical pro forma consolidated Cash Flow Statements of BBWP for the periods ended 30 June 2004 and 2005; and (ii) the historical pro forma consolidated Balance Sheet of BBWP as at 30 June 2005; in accordance with the Pro Forma Adjustments and the measurement and recognition principles (but not the disclosure requirements) of the AIFRS. 122

125 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Subsequent Events Apart from the matters dealt with in this Report and elsewhere in this Offer Document, and having regard to the scope of our Report, to the best of our knowledge and belief, no material transactions or events outside of the ordinary business of BBWP subsequent to 30 June 2005 have come to our attention that would require comment on, or adjustment to, the information referred to in our Report or that would cause such information to be misleading or deceptive. Independence or Disclosure of Interest Ernst & Young does not have any interest in the outcome of the IPO, other than in connection with the preparation of this Report and participation in due diligence procedures. Ernst & Young Transaction Advisory Services Limited has prepared an Independent Accountant s Report on the forecast financial information. Ernst & Young will receive a professional fee for the preparation of this Report. Ernst & Young acted as the statutory auditor of Babcock & Brown Wind Partners Pty Limited and Babcock & Brown Wind Partners Trust until 19 September Yours faithfully Ernst & Young 123

126 11 EXPERTS REPORTS 11.2 independent accountant s ForeCast FinanCial information report 26 September 2005 The Directors Babcock & Brown Wind Partners Pty Limited Level 39, The Chifley Tower 2 Chifley Square SYDNEY NSW 2000 The Directors Babcock & Brown Wind Partners (Bermuda) Ltd Level 39, The Chifley Tower 2 Chifley Square SYDNEY NSW 2000 The Directors Babcock & Brown Wind Partners Services Limited as responsible entity for the Babcock & Brown Wind Partners Trust Level 39, The Chifley Tower 2 Chifley Square SYDNEY NSW 2000 Dear Sirs Independent Accountant's Report on Forecast Financial Information We have prepared this Independent Accountant's Report (the "Report") on the forecast financial information of Babcock & Brown Wind Partners ("BBWP") for the financial years ending 30 June 2006 and 2007 for inclusion in a combined prospectus and product disclosure statement to be dated on or about 26 September 2005 (the "Offer Document") relating to the initial public offering of stapled securities issued by BBWP ("IPO"). Expressions defined in the Offer Document have the same meaning in this Report. The nature of this Report is such that it can be given only by an entity which holds an Australian Financial Services Licence under the Corporations Act. Ernst & Young Transaction Advisory Services Limited holds the appropriate Australian Financial Services Licence. Scope You have requested Ernst & Young Transaction Advisory Services Limited to prepare a report covering the following information: Ernst & Young Transaction Advisory Services Limited ABN Australian Financial Services Licence No Liability limited by the Accountants Scheme, approved under the Professional Standards Act 1994 (NSW). 124

127 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 2 a) forecast financial performance of BBWP for the years ending 30 June 2006 and 2007 as set out in Section 9.5 of the Offer Document; b) forecast cashflow summary of BBWP for the years ending 30 June 2006 and 2007 as set out in Section 9.6 of the Offer Document; and c) pro-forma forecast financial performance and cashflow summary of BBWP for the year ending 30 June 2006 as set out in Section 9.9 of the Offer Document. The financial information set out above will be referred to collectively as the "Directors' Forecasts". The Directors' Forecasts are presented in accordance with Australian equivalents to International Financial Reporting Standards ("AIFRS"). The Directors are responsible for the preparation and presentation of the Directors' Forecasts, including the best-estimate assumptions, which include the pro-forma transactions, on which they are based. The Directors' Forecasts have been prepared for inclusion in the Offer Document. We disclaim any assumption of responsibility for any reliance on this Report or on the Directors' Forecasts to which it relates for any purposes other than for which it was prepared. This Report should be read in conjunction with the full Offer Document. Review of Directors' Best-Estimate Assumptions Our review of the best-estimate assumptions underlying the Directors' Forecasts was conducted in accordance with the Australian Auditing and Assurance Standard AUS 902 "Review of Financial Reports". Our procedures consisted primarily of enquiry and comparison and other such analytical review procedures we considered necessary. These procedures included discussion with the Directors and management of BBWP and have been undertaken to form an opinion whether anything has come to our attention which causes us to believe that: a) the best-estimate assumptions do not provide a reasonable basis for the preparation of the Directors' Forecasts; b) in all material respects, the Directors' Forecasts are not properly prepared on the basis of the best-estimate assumptions; and c) the Directors' Forecasts are not presented fairly in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies of BBWP disclosed in Note 2 of Appendix 2 of the Offer Document so as to present a view of BBWP which is not inconsistent with our understanding of BBWP's past, current and future operations. The Directors' Forecasts have been prepared by the Directors to provide investors with a guide to BBWP's potential future financial performance and cash flows based upon the achievement of certain economic, operating, developmental and trading assumptions about future events and actions that have not yet occurred and may not necessarily occur. There is a considerable degree of subjective judgement involved in the preparation of the Directors' Forecasts. Actual results may vary materially from those Directors' Forecasts and the variation may be materially positive or negative. Accordingly, investors should have regard to the Risk Factors set out in Section 10 of the Offer Document and the Sensitivity Analysis set out in Section 9.11 of the Offer Document. 125

128 11 EXPERTS REPORTS 3 The Directors' Forecasts set out in Section 9.5, 9.6 and 9.9 of the Offer Document have been prepared using AIFRS. The principle differences between AGAAP and AIFRS are set out in Section 9.3 of the Offer Document. Our review of the Directors' Forecasts, that are based on best-estimate assumptions, is substantially less in scope than an audit examination conducted in accordance with Australian Auditing and Assurance Standards. A review of this nature provides less assurance than an audit. We have not performed an audit and we do not express an audit opinion on the Directors' Forecasts included in the Offer Document. Statement Based on our review of the Directors' Forecasts as set out in Section 9.5, 9.6 and 9.9 of the Offer Document, which is not an audit, and based on an investigation of the reasonableness of the Directors' best-estimate assumptions giving rise to the prospective financial information, nothing has come to our attention which causes us to believe that: a) the Directors' best-estimate assumptions set out in Sections 9.8 of the Offer Document do not provide a reasonable basis for the preparation of the Directors' Forecasts; and b) the Directors' Forecasts are not properly compiled on the basis of the Directors' best-estimate assumptions and are not presented fairly in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies adopted by BBWP disclosed in Note 2 of Appendix 2 of the Offer Document as applied in Australia for presenting forecasts in a public offer document. The underlying assumptions are subject to significant uncertainties and contingencies often outside the control of BBWP and the Directors. If events do not occur as assumed, actual results achieved and distributions provided by BBWP may vary significantly from the Directors' Forecasts. Accordingly, we do not confirm or guarantee the achievement of the Directors' Forecasts, as future events, by their very nature, are not capable of independent substantiation. Investors should have regard to the Sensitivity Analysis and Risk Factors detailed in Sections 9.11 and 10 respectively of the Offer Document. Subsequent Events Apart from the matters dealt with in this Report, and having regard to the scope of our Report, to the best of our knowledge and belief no material transactions or events outside of the ordinary business of BBWP have come to our attention that would require comment on, or adjustment to, the information referred to in our Report or that would cause such information to be misleading or deceptive. 126

129 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 4 Independence or Disclosure of Interest Ernst & Young Transaction Advisory Services Limited does not have any interest in the outcome of the IPO, other than in connection with the preparation of this Report and participation in due diligence procedures. Ernst & Young has prepared an Independent Accountant's Report on the Historical Financial Information. Ernst & Young acted as the statutory auditor of Babcock & Brown Wind Partners Pty Limited and Babcock & Brown Wind Partners Trust until 19 September Yours faithfully Ernst & Young Transaction Advisory Services Limited Anne Brennan Director 127

130 11 EXPERTS REPORTS 11.3 taxation report /002:PGL:JFS N 1 Eagle Street N Tel Brisbane QLD 4000 Fax Australia PO Box 7878 Waterfront Place Brisbane QLD 4001 DX 165 Brisbane 26 September 2005 The Directors Babcock & Brown Wind Partners Pty Limited Level 39 The Chifley Tower 2 Chifley Square SYDNEY NSW 2000 The Directors Babcock & Brown Wind Partners (Bermuda) Limited c/-level 39 The Chifley Tower 2 Chifley Square SYDNEY NSW 2000 The Directors Babcock & Brown Wind Partners Services Limited (as responsible entity of the Babcock & Brown Wind Partners Trust) Level 39 Chifley Tower 2 Chifley Square SYDNEY NSW 2000 Dear Sirs Babcock & Brown Wind Partners Group - Independent Income Tax Opinion We have been requested to provide our independent opinion on certain income tax matters relating to the combined prospectus and product disclosure statement (Offer Document) to be issued in connection with the proposed initial public offer (Offer) of stapled securities (Stapled Securities). Pursuant to this Offer, investments comprising ordinary shares in Babcock & Brown Wind Partners Limited (BBWPL), ordinary shares in Babcock & Brown Wind Partners (Bermuda) Limited (BBWPB) and units in Babcock & Brown Wind Partners Trust (BBWPT), hereafter referred to as the Investments, will be issued to the public. The potential subscribers for the Investments, in the context of the Offer, are referred to as Investors in this opinion. Scope of Opinion Our advice is general in nature and the individual circumstances of each Investor may affect the taxation implications of the investment to that Investor. This taxation opinion letter and the information contained in it, is not, and is not intended to be, taxation advice to any Investor. Investors should seek appropriate independent professional advice that considers the taxation implications in respect of their own specific circumstances. We disclaim all liability to any Investor or other party for all costs, loss, damage and liability that the Investor or other party may suffer or incur arising from or relating to or in any way connected with (a) the contents of our opinion or (b) the provision of our opinion to the Investor or other party or (c) the reliance on our opinion by the Investor or other party. Liability limited by the Accountants Scheme, approved under the Professional Standards Act 1994 (NSW) 128

131 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT We provide our independent income tax opinion on the basis that the underlying assumptions are fair and reasonable and the representations made to us by the Directors of BBWPL, Directors of BBWPB and Directors of Babcock & Brown Wind Partners Services Limited as the responsible entity of BBWPT (Responsible Entity) are correct. The opinion set out below is primarily relevant for Australian tax resident Investors investing on capital account. Different outcomes will potentially arise for Investors who are non-tax residents of Australia, as well as Investors investing on revenue account. We recommend that those Investors seek professional taxation advice in relation to the Offer and the nature of the Investments. The summary of the Australian income tax implications set out below is based on established judicial and administrative interpretations of the Income Tax Assessment Act 1997 (Cth) (the 1997 Act) of Australia and the Income Tax Assessment Act 1936 (Cth) (the 1936 Act) of Australia as at the date of this opinion. Whilst we have had regard to proposed changes to tax law to the extent possible in the preparation of this opinion, we do not undertake to update our opinion in respect of any future changes to the tax law. Taxation is only one of the matters that must be considered when making a decision on a financial product. Ernst & Young is not licensed to provide financial product advice under the Corporations Act. Under the Corporations Act, this advice is not required to be provided to you by the holder of an Australian Financial Services Licence.You should consider taking advice from the holder of an Australian Financial Services Licence before making a decision on a financial product. The Offer The Offer is for Investments each comprising one share in BBWPL, one share in BBWPB and one unit in BBWPT. The shares and units will be stapled together (ie traded together). Accordingly, there will be one market price for the Investment. However, for income tax purposes each share in BBWPL and BBWPB and each unit in BBWPT should, in our view, be considered separately. Investment in BBWPL Income Tax Treatment of BBWPL The taxable income of BBWPL and its Australian tax resident subsidiary companies will be subject to income tax at the corporate tax rate (currently 30%). The BBWPL taxable income will primarily be derived from the following sources: Profits from stages 1 of the Lake Bonney Project in South Australia; and Profits from the Alinta Wind Farm in Western Australia upon commencement of operations. 129

132 11 EXPERTS REPORTS Dividend Distributions to Investors Investors will potentially receive dividend distributions from BBWPL. Such dividends will either be franked (either fully or in part) or unfranked. BBWPL will be able to frank dividends where it has available franking credits. Generally, franking credits are created through the payment of Australian corporate tax and the receipt of franked dividends. A notice will be provided by BBWPL advising Investors of the franked and unfranked components of any dividends paid. The taxation treatment of a BBWPL dividend received by Investors will vary depending on the type of Investor. Set out below is a summary of how different types of Australian tax resident Investors will treat a distribution received from BBWPL. Australian Tax Resident Individuals Dividends received by such Investors should be included in their Australian assessable income, together with the amount of any franking credit attached to the dividend. A franking credit will be attached to the dividend to the extent that the dividend received is franked. The franking credit attached to the dividend will generally subject to certain holding period rules described below be allowed as a credit against the tax payable on the Investor s total taxable income (ie tax offset). In some circumstances, the tax offset may result in a tax refund being payable to the Investor. Australian Tax Resident Companies The taxation treatment of a dividend received by an Australian tax resident company is the same as that described above for an Australian tax resident individual. However, the tax offset generated from the franking credits received cannot give rise to a refund. In certain circumstances however, the amount of the franking offset in excess of the tax payable by the company may be carried forward into future income years as a revenue loss. The amount of the revenue loss is calculated by dividing the excess franking offset by the corporate tax rate. Australian Tax Resident Trusts The comments below relate to Australian tax resident beneficiaries who are not under a legal disability. If the beneficiary is not an Australian tax resident, or is under a legal disability, we recommend you seek independent professional taxation advice. Distributions in the form of dividend income will either be included in the trustee s or the beneficiary s assessable income, as the case may be. Distributions in the form of dividend income ultimately received by Australian tax resident beneficiaries of trusts are eligible for a tax offset equal to the beneficiary s share of franking credits attached to the dividend income distributions. The tax treatment of the dividend then depends on the legal identity of the beneficiary as an individual, a company or a trust. 130

133 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT If the trust has a net loss or does not have net income, the tax offset is effectively lost. However, if the trust has at least $1 of net income, all of the tax offset (even if it exceeds the amount) should be able to be utilised by the beneficiaries presently entitled to that net income. In certain circumstances, the Trustee may be required to make a Family Trust Election to enable a beneficiary to obtain a tax offset from franking credits attached to dividends paid to the trust. We recommend that you seek advice from your professional advisor in this regard. Where the trustee is subject to tax, it is also entitled to a proportion of the franking credits on distributions received indirectly (providing the trust deed provides for the allocation of different classes of income among beneficiaries) in the same way as if the trustee were an individual (as discussed above). Australian Tax Resident Superannuation Funds Superannuation funds receive full tax offsets (which can be offset against the fund s tax liability) notwithstanding that part of the fund s franked distribution income may be exempt. Excess offsets should be refundable. 45-Day Holding Rule In certain circumstances, an Investor s entitlement to the benefit of the imputation credit tax offset may be denied where specific holding period rules relating to the underlying investment in BBWPL are not satisfied. The holding period rules broadly require the shareholder to hold the shares in respect of which a dividend has been paid, at risk, for a minimum period of 45 days during the relevant period. The application of those rules will depend on the specific Investor s circumstances and are beyond the scope of this opinion. However, these rules should not apply to long term Investments. Investment in BBWPB Income Tax Treatment of BBWPB BBWPB is a company incorporated in Bermuda. At the time of the Offer, the central management and control of BBWPB is in Australia. BBWPB is an Australian income tax resident company because it is centrally managed and controlled in Australia. Therefore, it is subject to Australian income tax at the corporate tax rate (currently 30%) on its taxable income. Currently, BBWPB has no significant assets and should not derive any material amounts of income. In the event that the central management and control of BBWPB ceases to be in Australia, BBWPB may cease to be an Australian tax resident company. At the date of this Offer Document, there is no income tax, capital gains tax, withholding tax, estate duty or inheritance tax payable in Bermuda by BBWPB or its shareholders who are not ordinarily resident in Bermuda. 131

134 11 EXPERTS REPORTS BBWPB has applied for (and expects to receive) an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event of there being enacted in Bermuda any legislation imposing income tax or capital gains tax or any estate duty or inheritance tax, such tax shall not be applicable to BBWPB or any of its operations until 28 March Dividend Distributions to Investors Investors may receive dividend distributions from BBWPB if it commences to carry on operations or hold investments in the future. The taxation treatment of a BBWPB dividend received by Investors will vary depending on the type of Investor. The relevant implications are the same as those outlined above for BBWPL. Different implications may arise if BBWPB is not an Australian tax resident company at the time any dividends are paid. Investment in BBWPT Income Tax Treatment of BBWPT Under the general taxation rules relating to trusts, Australian tax resident beneficiaries are liable to taxation on that portion of the trust s net (taxable) income to which they are presently entitled. Generally, if there is a portion of the net income of the trust to which no beneficiary is presently entitled, the trustee of the trust may be liable to taxation on that income at the highest individual marginal tax rate (currently 47%) plus the Medicare Levy. Given the terms of the BBWPT Trust Deed and the nature of BBWPT as a unit trust, the Investors should, at all relevant times, be considered presently entitled to a relevant proportion of the net income (if any) of BBWPT. Consequently, in respect of Australian tax resident beneficiaries who are not under a legal disability the Responsible Entity should not be liable to taxation in respect of any portion of the net income of BBWPT. Rather, each Investor should include in its assessable income, for a relevant year of income, that portion of the net (taxable) income of BBWPT to which it is presently entitled for that same year of income. This is so even where an Investor receives a distribution of net income after the end of the year of income to which it is attributable. We understand that the Responsible Entity will advise each Investor of the portion of the net income of BBWPT that the Investor is presently entitled to in respect of each year of income, after the end of each year of income. 132

135 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Taxation of BBWPT Under Corporate Tax Model In certain circumstances, specified unit trusts can be subject to tax broadly under a corporate tax model. In these circumstances, the trustee of the unit trust pays tax on the net income of the trust, rather than the beneficiaries. Divisions 6B and 6C of Part III of the 1936 Act provide the legislative mechanism for such treatment and are discussed below. Division 6B Division 6B will only apply where BBWPT is classified as an eligible unit trust. That definition is satisfied where property or a business formerly owned by a company in which the Investor was a shareholder is transferred to a unit trust in which the Investor is correspondingly a unit holder, under a prescribed arrangement. We do not believe such a prescribed arrangement exists, given our understanding of the way in which the investments of BBWPT are to be acquired. Accordingly, Division 6B should not apply to BBWPT. Division 6C Division 6C will only apply where BBWPT is, inter alia, considered to be a trading trust. To be a trading trust in respect of a year of income, the trust must have, at any time during the income year, either: Carried on a trading business ; or Controlled, or been able to control, directly or indirectly the affairs or operations of another person in respect of the carrying on by the other person of a trading business. A trading business is defined as a business that does not consist wholly of an eligible investment business. An eligible investment business includes, inter alia, investing in land primarily for the purpose of deriving rent, investing in units in a unit trust, investing in share capital and investing in secured or unsecured loans. We have reviewed the current operations of BBWPT and consider that all of its activities wholly constitute an eligible investment business. A trust may also be a public trading trust when it controls or is able to control the affairs or operations of another person in respect of the carrying on by the other person of a trading business. It is likely that the activities of BBWPL would, at present, constitute a trading business. However, we understand that there should be no capacity for the Responsible Entity to control the activities of BBWPL as contemplated in the definition of a trading trust. 133

136 11 EXPERTS REPORTS On this basis, we consider that Division 6C should not apply to BBWPT in the ordinary course of events. We note, however, that the requirements of Division 6C apply on a year-by-year basis and, accordingly, will need to be carefully monitored by the Trustee of BBWPT. Taxation of Trust Distributions Trust income assessed in the hands of a presently entitled beneficiary or trustee retains the same character the income had when derived by the trust. Accordingly, where BBWPT s net income includes dividends and capital gains, this income (including any available franking credits) will flow through to the presently entitled beneficiaries (Investors). Under the terms of the BBWPT Trust Deed, the Responsible Entity has the power to determine Distributable Income and may also resolve to distribute capital to members on a pro rata basis. For income tax purposes, an Investor should include in its assessable income, its share of the net income of BBWPT as determined for tax purposes, being the same proportion thereof as its proportionate share of BBWPT s distributable income. The net income of BBWPT as determined for income tax purposes may be different to the amount that is considered distributable income by the Responsible Entity for the purposes of the BBWPT Trust Deed. Such differences commonly arise on account of different accounting and tax treatments of some amounts (for example, differences between accounting and tax depreciation). To the extent that the distributable income exceeds the net income for tax purposes of BBWPT, the excess (the non-assessable part), commonly referred to as a tax deferred amount, should not be included in the Investor s assessable income. However, depending upon the nature of the nonassessable distribution, capital gains tax implications may arise (as discussed below). We understand that the Responsible Entity will inform Investors of the tax deferred components of any amount distributed in accordance with customary industry practices in this regard. The forecasts indicate that the distributions made to the Investors during the years ended 30 June 2006 and 2007 will be wholly of a tax deferred nature. Australian Capital Gains Tax Implications for Investors Capital Gains Tax Implications on Receipt of Tax Deferred and Capital Distributions from BBWPT Trust Any tax-deferred distributions (including distributions of trust capital) received by an Investor that holds their Investment on capital account should reduce that Investor s capital gains tax cost base in their units in BBWPT by the amount of the distribution. Any such reduction is triggered at the end of the income year in which the distribution is received, or where another capital gains tax event occurs prior to that time (such as the disposal of the Investor s Investment), just before that other capital gains tax event. To the extent that the sum of the tax-deferred or capital distributions in any given income year exceeds the Investor s cost base calculated just prior to the cost base reduction, a capital gain equal to the excess may arise. 134

137 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Disposal of Shares/Units in BBWPL/BBWPB/BBWPT For Australian capital gains tax purposes, each Stapled Security (Investment) is considered to comprise three separate assets, being a share in each of BBWPL and BBWPB and a unit in BBWPT. A taxable capital gain will arise where the sale proceeds received exceed an investor s cost base of the relevant portion (being each share and unit) of the Stapled Security. A capital loss will arise where the investor s reduced cost base of the relevant portion of the Stapled Security exceeds the sale proceeds. As the Stapled Security cannot be acquired or traded separately, a reasonable apportionment of the cost base, reduced cost base and sale proceeds between each share and unit will be required. As discussed above, cost base adjustments may be required (and capital gains may arise) should a distribution representing a return of capital be paid by BBWPT or where a non-assessable distribution is made by BBWPT. Discount of Capital Gain Any net capital gain realised by an Investor in BBWPT/BBWPL/BBWPB (e.g. if a sale were to occur) may be discounted provided the asset that gave rise to the gain was held for at least 12 months prior to the occurrence of the CGT event. Where the CGT discount is available, individual Investors (either holding their investment directly or indirectly through a trust) may reduce their net capital gain by 50%. For trustees of superannuation funds, the net capital gain may be reduced by 33 1 / 3 %. No such discount is available for corporate investors. Deductibility of Interest Associated with the Acquisition of Investments Generally, any interest costs incurred in acquiring (assessable) income producing investments are tax deductible. In practical terms, this would ordinarily involve a reasonable expectation that, over the period the investment may be held, the assessable amount of dividends and trust distributions which will be derived from the investment will exceed the total deductions in respect of that investment. As such, any interest costs incurred by a taxpayer in acquiring the Investments should be deductible to the extent that the relevant expectation is present. To the extent that any interest incurred is non-deductible, Investors should be able to include that non-deductible amount in the cost base of their investment. Investors should seek specific professional taxation advice in relation to these matters. 135

138 11 EXPERTS REPORTS Withholding Tax Obligations Investors are not obliged to quote their tax file number (TFN) or Australian Business Number (ABN) to BBWPL, BBWPB or the Responsible Entity. However, if an Investor does not quote their ABN, TFN or claim an exemption, BBWPL, BBPWB and the Responsible Entity of BBWPT will be obliged to withhold tax from any amount of net income at the highest individual marginal rate (currently 47%) plus the Medicare Levy. For completeness, no such withholding is required in respect of tax deferred distributions including returns of capital. Yours faithfully Ernst & Young Paul Laxon Partner 136

139 12 material contracts 12.1 Material ContraCts relating to BBWp incorporation and corporate structure of BBWp BBWP comprises two companies and a trust. The securities of the two companies and the trust are stapled together (see Section ). BBWPL is incorporated in the State of Victoria, Australia. It was incorporated as a proprietary company limited by shares on 11 June 2003 and will convert into an Australian public company limited by shares on 30 September BBWPB was incorporated in Bermuda as an exempted mutual fund company on 12 September BBWPT is a registered managed investment scheme ( registered scheme ). It was established as a private trust pursuant to a trust deed dated 16 June 2003 and became a Registered Scheme on 26 September Its initial trustee was BBAH. As of 12 September 2005, BBWPS replaced BBAH as trustee and, since BBWPT is now a Registered Scheme, BBWPS is referred to as the responsible entity of BBWPT. BBAH acts as Custodian of BBWPT s assets. On 14 September 2005 the Responsible Entity made an in specie distribution of shares in BBWPB to the then unitholders of BBWPT so that in addition to holding a BBWPL Share stapled to a Unit, they also held as of that date a BBWPB Share stapled to a BBWPL Share and a Unit. BBWP s principal investments will, following completion of the Offer and the US Acquisition, be broadly organised as set out in the following diagram. securityholders (trading on asx)* custodian babcock & brown Asset holdings Pty ltd Babcock & Brown Wind partners ltd (BBWpl) Stapled Babcock & Brown Wind partners trust (BBWpt) Stapled Babcock & Brown Wind partners (Bermuda) ltd (BBWpB) responsible Entity babcock & brown wind Partners Services ltd bbwp (us) llc 99% 80% lake bonney wind Power Pty ltd renewable Power ventures investment trust olivento Sl windpark Niederrhein gmbh & co. kg lake bonney wind Power 2 Pty ltd bbwe 20% 75% 25% walkaway wind Power Pty ltd 3 wind farm companies bbwpus class b member of 50% Sweetwater 1 50% blue canyon 50% combine hills 50% Sweetwater 2 80% caprock lake Bonney 1 alinta olivo niederrhein lake Bonney 2 Usa * subject to admission to the official list of ASX Note: The above diagram is for illustrative purposes only. It does not include all legal entities owned by BBWP, in particular it does not include all intermediate holding companies. 137

140 12 MATERIAL CONTRACTS BBWp Constitutional documents A. BBWPL Constitution BBWPL is an Australian company registered under the Corporations Act. It will convert into a public company on 30 September The main rules governing the operation of BBWPL are set out in the BBWPL Constitution. The Corporations Act, any exemptions and declarations given by ASIC, the ASX Listing Rules (subject to waivers) and the general law are also relevant to the rights and obligations of the BBWPL and the directors and shareholders of BBWPL. Share Capital and Variation of Rights Subject to the stapling provisions of the BBWPL Constitution, the Corporations Act, and the ASX Listing Rules, the issue of shares (including partly paid shares and redeemable preference shares) in BBWPL is under the control of the Directors. The Board has the power to grant to any person an option over shares or pre-emptive rights at any time and for such consideration as they determine. Whenever the capital of BBWPL is divided into different classes of shares, the rights attached to any class of share may, subject to the Corporations Act and the ASX Listing Rules, be altered with the sanction of a special resolution passed at a separate meeting of the holders of shares of that class, or with the written consent of the holders of at least three quarters of the shares of that class on issue. The rights and interests of shareholders include rights to receive dividends, receive notice of and attend meetings and the entitlement to vote on all matters and participate in a winding up. BBWP Stapled Securities The BBWPL Constitution contemplates the stapling of one Unit, one BBWPL Share and one BBWPB Share such that Units, BBWPL Shares and BBWPB Shares can only be issued, transferred or otherwise dealt with as part of Stapled Securities. Liability for Calls, Interest and Forfeiture The Directors may allot or issue any share on the basis that the issue price is payable by instalments. If a shareholder fails to pay a call or instalment in respect of any shares on the appointed payment date, the Directors may give notice to that shareholder requiring payment of that sum, together with any interest that has accrued. If, after valid notice is given, the call or instalment of a call remains unpaid, the Directors may, by resolution forfeit the relevant shares. A forfeiture includes all dividends and distributions declared or to be made in respect of those forfeited shares and not actually paid or distributed before the forfeiture. The Directors may sell, re-issue or dispose of shares forfeited in this way, subject to compliance with the Corporations Act and ASX Listing Rules. A share forfeited may be sold or otherwise disposed of as a fully paid ordinary share (together with the attached securities) at a price equal to its fair value as determined by the Directors with the balance of the sale price of the Stapled Security being allocated between the attached securities in accordance with the Trust Constitution. General Meetings General Meetings of BBWPL are to be held in accordance with the Corporations Act, and each shareholder will be entitled to receive notice of a general meeting in accordance with the Corporations Act. While stapling applies, the Directors may convene a meeting of shareholders in conjunction with a meeting of BBWPT Unit holders and BBWPB shareholders. Voting Subject to any special rights or restrictions for the time being attached to any class of shares and to the BBWPL Constitution, at a general meeting, each shareholder present in person or by proxy, attorney or representative has one vote on a show of hands, and one vote for each fully paid share on a poll, or with respect to partly paid shares, the proportion of the aggregate amount paid on such partly paid shares to the aggregate purchase price. Voting at any meeting of shareholders is by a show of hands (unless a poll is demanded). The quorum required for a meeting of shareholders is two members present in person or by proxy, attorney or representative. 138

141 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Dividends The BBWPL Directors may determine that a dividend is payable, fix the amount and the time for payment and authorise the payment or crediting by BBWPL to, or at the direction of, each shareholder entitled to that dividend. If a dividend is paid, it will be paid in proportion to the number of shares held by a shareholder and, in the case of partly paid shares, in proportion to the percentage of the issue price that has been paid (excluding amounts credited and amounts paid in advance of a call). Interest is not payable in respect of any dividend. An amount due and payable by a shareholder to BBWPL may be deducted from the dividend payable to that shareholder. Winding Up If BBWPL is wound up, the liquidator may, with the authority of a special resolution of BBWPL, divide among the shareholders in kind the whole or any part of the property of BBWPL and for such purpose may set such value as the liquidator considers fair and may determine how the division shall be carried out as between shareholders or different classes of shareholders. Transfer of shares While the Stapled Securities are quoted on ASX they may be transferred in accordance with any method of transfer required or permitted by the Corporations Act and ASX business rules. The BBWPL Directors will only register a transfer of a BBWPL Share if the relevant securities to which that share is stapled are also to be transferred simultaneously. The Directors must refuse to register a transfer which is in breach of a restriction agreement (as defined in the ASX Listing Rules). B. BBWPB Constitution BBWPB is a company incorporated under the laws of Bermuda and registered in Australia as a foreign company under the Corporations Act. The main rules governing the operation of BBWPB are set out in the bye-laws of BBWPB and in the Bermuda Companies Act and the securities laws and regulations of Bermuda. The Corporations Act, any exemptions and declarations given by ASIC, the ASX Listing Rules (subject to waivers) and the general laws of Bermuda and Australia are also relevant to the rights and obligations of BBWPB and the directors and shareholders of BBWPB. The bye-laws of BBWPB are the same with respect to the BBWPB Shares as the equivalent provisions in the BBWPL Constitution (summarised above) except that anything which may be done by resolution of the company in general meeting may be done by a resolution signed by all the shareholders (except for a resolution removing an auditor or director before the expiration of his term). C. Trust Constitution BBWPT is a managed investment scheme which has been registered by ASIC in accordance with Chapter 5C of the Corporations Act. It has been established in the form of a unit trust. The responsible entity of BBWPT is BBWPS. The main rules governing the operation of BBWPT are set out in the Trust Constitution. The Corporations Act, exemptions and declarations given by ASIC, the ASX Listing Rules (subject to waivers) and the general law of trusts are also relevant to the rights and obligations of BBWPS as Responsible Entity and of Unitholders and affect the manner in which the Trust Constitution is interpreted. Terms and Conditions of Units Subject to the stapling provisions, the Corporations Act, and the ASX Listing Rules, the issue of Units (including partly paid Units) in BBWPT is under the control of BBWPS as Responsible Entity. The Trust Constitution contains provisions dealing with the rights and interests of Unitholders, which includes rights to receive distributions, attend meetings and register complaints. Stapling Provisions The Trust Constitution provides for the stapling of one ordinary unit in BBWPT, one ordinary share in BBWPL and one ordinary share in BBWPB such that units and shares can only be issued, transferred or otherwise dealt with as part of Stapled Securities. While the Stapled Securities are Officially Quoted, the Responsible Entity must use every reasonable endeavour to ensure the Stapled Securities are dealt with in a manner consistent with stapling. 139

142 12 MATERIAL CONTRACTS Partly Paid Units The Responsible Entity has the power to issue partly paid Units. If a Unit holder does not pay an uncalled amount when due, the Responsible Entity may determine that the Unit (together with any attached securities) is forfeited and sold and may, subject to the ASX Listing Rules and the Constitutions, suspend rights and entitlements in connection with the Unit and the attached securities. Transfers of Units Stapled Securities are transferable and Units may be transferred in accordance with the Trust Constitution and any method of transfer required or permitted by the Corporations Act and ASX business rules. The Responsible Entity will only register a transfer of a Unit if the relevant securities to which the Unit is stapled are also to be transferred simultaneously. The Responsible Entity must refuse to register a transfer which is in breach of a restriction agreement (as defined by the ASX Listing Rules). Unitholder Meetings BBWPS may convene a Unitholder meeting at any time and must do so if required by the Corporations Act. A quorum is at least two Unitholders present in person or by representative or proxy holding or representing the holders of at least 10% of Units on issue. The Corporations Act governs voting at a Unitholders meeting. However, subject to the Corporations Act, a resolution is normally decided by a show of hands unless a poll is demanded by at least five Unitholders entitled to vote, Unitholders with at least 5% of the votes that may be cast or by the chairman of the meeting or unless a special resolution is proposed. On a poll, each Unitholder present has one vote for each dollar of value of Units held. Distributions The Responsible Entity must determine the distributable income, but if it does not make a timely determination, the distributable income for the year must be at least the taxable income of BBWPT. Unitholders are entitled to distributions in proportion to the number of Units held by them at the end of the relevant distribution period (adjusted if any Units are partly paid). Winding Up The Responsible Entity may terminate BBWPT by notice to Unitholders. Otherwise, BBWPT may terminate in accordance with the Trust Constitution or by law. Following termination, the Responsible Entity must realise assets. After allowance for all liabilities and meeting all expenses, the Responsible Entity must distribute any remaining amount to Unitholders in proportion to the number of Units held by the Unitholder at termination (adjusted if any Units are partly paid). Rights of the Responsible Entity The Trust Constitution also contains provisions dealing with the powers of BBWPS as Responsible Entity of BBWPT, including powers to invest in assets, borrow and enter into contracts. BBWPS also has rights to receive fees and reimbursement from BBWPT for expenses incurred in properly performing its duties, and to reject an application for Units in whole or in part without giving any reason. Subject to the Corporations Act, the Trust Constitution allows BBWPS (and its associates) to deal with itself in a different capacity and to deal with any other stapled entity or an associate or a Unitholder. BBWPS may be interested in any contract or transaction with itself, any other stapled entity or an associate or Unitholder. BBWPS may also be the responsible entity of another managed investment scheme. Under the Trust Constitution, BBWPS is entitled to be indemnified out of the assets of BBWPT for any liability incurred in proper performance of its powers and duties. Liability of Responsible Entity and Unitholders The Trust Constitution also contains provisions addressing the liability of the Responsible Entity and the Unitholders. The Trust Constitution states that a Unitholder s liability is limited to the amount, if any, which remains unpaid in relation to their Units, but higher courts are yet to determine the effectiveness of provisions of this kind. The Trust Constitution also provides that the Responsible Entity is not liable in contract, tort or otherwise to Unit holders for any loss suffered in any way relating to BBWPT except to the extent that the Corporations Act imposes such liability. 140

143 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT D. Stapling Deed BBWPS, as the Responsible Entity, BBWPL and BBWPB have entered into the Stapling Deed. The Stapling Deed sets out the terms and conditions governing the relationship between BBWPS, BBWPL and BBWPB in respect of the Stapled Securities. The Stapling Deed deals with a variety of general matters, including: the requirement that the Responsible Entity, BBWPL and BBWPB co-operate and consult with each other with respect to all matters relating to the Stapled Securities dealings in Stapled Securities the allocation of the price payable for the issue, redemption or buy-back of a Stapled Security among a Unit, a BBWPL Share and a BBPWB Share the obligation of each of BBWPS, BBWPL and BBWPB to consult with each other prior to making any calls with respect to partly paid Units, BBWPL Shares or BBWPB Shares provision for unstapling the duties and obligations of the parties, including duties in relation to stapling and the parties respective duties under the Constitutions retirement of the Responsible Entity the limited liability of the Responsible Entity. The Stapling Deed also includes the intermediary authorisation for Australian financial services licensing purposes as regards the issue of shares by BBWPB. E. Custodian Agreement Pursuant to the Custodian Agreement, BBWPS as Responsible Entity has appointed BBAH to act as custodian of the assets of BBWPT. BBWPS must provide information to BBAH to enable it to perform its obligations and copies of any communications with ASIC where this might affect the Custodian as well as notify of any changes to BBWPT. The Custodian must hold legal title to the assets of BBWPT for BBWPS and deal with the assets as BBWPS instructs. The Custodian must also maintain insurance at its own cost, hold all title documents in a secure place, provide access to the Responsible Entity to records relating to the asset portfolio of BBWPT held by the Custodian, maintain back-up facilities, provide reports to the Responsible Entity on a regular basis reflecting any transactions and in accordance with any ASIC policies and maintain proper internal control and compliance systems. The Custodian is entitled to a fee of % p.a. of the gross value of BBWPT s assets payable quarterly. The agreement also sets out each party s rights to indemnification Management & financial advisory agreements A. Management Services Agreements Appointment of BBIM as Manager BBIM has entered into Management Services Agreements with each of BBWPL, BBWPM and the Responsible Entity (each a relevant BBWP entity) for the provision of services to BBWP. Under the terms of the Management Services Agreements, BBIM will make recommendations to BBWPL, BBWPB and BBWPS (as responsible entity of BBWPT) in respect of prospective investments and will provide management services to BBWP. The services provided by BBIM will include: investing and managing the portfolio of assets owned by the relevant BBWP entity, subject to certain limits; providing investment, consultation, advisory and management services generally in relation to authorised investments and the asset portfolio; 141

144 12 MATERIAL CONTRACTS identifying, investigating, evaluating and advising on investment opportunities for BBWP, including any opportunities identified by the relevant BBWP entity; exploring opportunities for the relevant BBWP entity to exit its investments and advising on such exit opportunities; identifying appropriate risk management policies and procedures in respect of the asset portfolio and reporting on the adequacy and effectiveness of those policies and procedures on a regular basis to the respective Board; assisting with the implementation of Board decisions; performing or procuring the performance of all reasonable accounting, tax, audit, IT and compliance (including corporate secretarial) services for the relevant BBWP entity; managing investor and public relations other services to assist BBWPS in performing its role as Responsible Entity. BBIM is authorised by the relevant BBWP entity to do all things necessary or incidental to perform the services. In performing the services, BBIM must comply with the then adopted investment strategy, the Stapling Deed, and any written policy and directions of the relevant BBWP entity which do not contravene any law or the relevant Management Services Agreement and are not inconsistent with the investment strategy or the Stapling Deed. BBIM may obtain assistance from time to time from professional advisers, specialist consultants and other experts as BBIM considers reasonably necessary in providing the services. Each relevant BBWP entity may appoint a separate manager of a specific asset in the following limited circumstances: where the asset was acquired on condition that existing management arrangements continue after the acquisition; or the asset has not been sourced by Babcock & Brown (or its associates) and either the asset is to be acquired on condition that it be managed by the entity which introduced it to its nominee or as the Securityholders, by resolution, require. Fees BBIM is entitled to be paid a Base Fee and an Incentive Fee under the Management Services Agreements. These fees are described in detail in Section 8.2. The Manager will be entitled to an amount per annum in respect of expenses. The Manager is also entitled to recover any costs paid by it on behalf of BBWP and certain taxes and to fees at market rates for providing any non-designated services. The Manager has the right to receive one third of the net value of any break, termination or similar fees received in connection with an investment or proposed investment. These amounts are detailed in Section 8.2. Termination BBIM will be appointed as Manager for a term of 25 years, unless terminated earlier as follows: The relevant BBWPL entity may terminate a Management Services Agreement to which it is a party immediately upon written notice if: a material breach by the Manager of the relevant Management Services Agreement occurs and is not remedied within a 90 day period any necessary licence, permit or authorisation held by the Manager or its delegate is materially breached, suspended or revoked or otherwise made subject to conditions which prevent it from performing its services and this is not remedied within 90 days Babcock & Brown and/or its controlled entities in aggregate cease to hold (directly or indirectly) more than 50% of the issued share capital of the Manager an insolvency event occurs in respect of the Manager. 142

145 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT BBIM may terminate a Management Services Agreement immediately upon written notice if: the relevant BBWP entity ceases to be admitted to the Official List; a material breach by the relevant BBWP entity of the relevant Management Services Agreement occurs and is not remedied with 90 days an insolvency event occurs in respect of the relevant BBWP entity; or a person, other than an associate of Babcock & Brown, acquires a relevant interest (as that term is defined in section 9 of the Corporations Act) in 30% or more of the securities of the relevant BBWP entity. If a Management Services Agreement is terminated, the relevant BBWP entity must promptly change its name, and procure that its subsidiaries and affiliates promptly change their names, so that they do not include the words Babcock & Brown. Termination of the Management Services Agreement may trigger rights of other parties under other agreements (see Sections , and ) B. Exclusive Financial Advisory Agreement From time to time, BBWPL, BBWPS as Responsible Entity or BBWPB (each a relevant BBWP entity) may seek financial advisory or investment banking services. With this in mind, each of BBWPL, BBWPB and BBWPS has entered into an Exclusive Financial Advisory Agreement with BBA. Under the agreement, BBA confirms its willingness and ability to act as financial adviser and provide investment banking services to the relevant BBWP entity. BBA will undertake to make itself available and ensure it has suitable resources to provide these services to BBWP. In consideration for such undertakings, BBWP has given BBA a first and last right of refusal regarding the provision of financial advisory and investment banking services. Where BBA is appointed to provide services, this appointment is on an exclusive basis. Under the agreement, BBA is appointed to provide financial advisory services in relation to the consummation of LB2 Financial Close. The fees payable for any service under this agreement are described in Section 8.2. The Exclusive Financial Advisory Agreement may be terminated by BBA by six months written notice to BBWP and by BBWP after the tenth anniversary of the agreement where it reasonably believes that BBA no longer posseses sufficient resources to provide the services, it has given written notice of that view to BBA, BBA is unable to address the concerns materially and BBWP gives not less than 6 months written notice of termination. The appointment of BBA in relation to the consummation of LB2 Financial Close terminates on LB2 Financial Close. BBWP has agreed to indemnify BBA and its related bodies corporate, officers, employees and agents for loss, liability, costs and expenses as a result of proceedings, penalties and fines arising out of the engagement, transactions contemplated by the engagement and performing the services other than where these arise because of their bad faith or material breach of the terms of the agreement debt Facility BBWPL has in place a multi-option facility agreement ( debt Facility ) with BOS International (Australia) Limited dated 23 September The facility comprises term facilities in a total amount of approximately 730,000,000, which are available subject to satisfaction of conditions precedent, to BBWPL to provide funding for the acquisition of the remaining 3 wind farms in the Olivo Portfolio, to refinance an equity bridge facility agreement in connection with the acquisition of the Niederrhein Wind Farm and to provide funding in connection with any future acquisition or development of an asset by BBWPL (subject to certain restrictions). BBWPL must repay all drawings under the Debt Facility on the date which is the third anniversary of the date it first makes a drawing under the Debt Facility. The Debt Facility contains representations, warranties and undertakings usual for a debt facility of this kind, given the nature of BBWP s assets. The Debt Facility imposes obligations on BBWP which include restrictions on BBWP s ability to sell certain assets which are designated as Core Assets under the Debt Facility (without the consent of the financiers) and restrictions on the ability of BBWPL, BBWPT and their subsidiaries to incur financial indebtedness in addition to the Debt Facility. 143

146 12 MATERIAL CONTRACTS The Debt Facility also imposes restrictions on the use of cashflows received by BBWPL including a requirement that all cashflows (subject to the restrictions and exceptions in the Debt Facility) actually distributed to BBWPL from other entities within the BBWP group must be paid into an account which is subject to the financiers security (the Proceeds Account ). Withdrawals from the Proceeds Account are permitted to pay expenses in a specified order of priority (including operating expenses, amounts due under the Debt Facility and amounts payable under management agreements) and only after such permitted payments are made may any remaining amounts ( Surplus Cash ) in the Proceeds Account be withdrawn and applied by BBWPL in its absolute discretion. If a specified interest cover ratio is not met, any Surplus Cash amounts must be used to prepay the Debt Facility and will not be available to BBWPL. All amounts in the Proceeds Account will be locked up by the financiers and not available to BBWPL if certain events occur including if an event of default occurs, if a less stringent specified interest cover ratio is not met or if any of its subsidiaries project debt financings are in default or in lock up. The events of default in the Debt Facility are also usual for debt facilities of this kind given the nature of BBWP s assets. If an event of default occurs the financiers are entitled to accelerate the repayment of the debt, cancel their commitments to lend and enforce the security. BBWPL has granted security to the financiers by way of fixed and floating charges under which BBWPL charges assets owned by it Material ContraCts relating to offer Underwriting agreement BBWPL, BBWPB and the Responsible Entity have entered into an underwriting agreement dated 26 September 2005 with the Underwriters under which: each of JPMorgan and UBS agrees to manage the Offer and severally to underwrite half of the Institutional Offer and the Broker Firm Offer to raise a total amount of approximately A$175 million BBAH agrees to manage and underwrite the Foundation Offer to raise a total amount of approximately A$186 million. The Underwriters may at any time appoint sub-underwriters. Note that the oversubscription amount of up to A$35 million referred to in Section 3.8 is not underwritten. Representations, Warranties and Undertakings BBWP gives various representations and warranties under the Underwriting Agreement including that this Offer Document complies with all applicable laws (as varied by any modification or exemption given by ASIC or ASX) and that the Stapled Securities issued under the Offer will be validly issued and free of encumbrances. The Underwriting Agreement imposes various obligations on BBWP, including that BBWP will apply to ASX for the Official Quotation of the Stapled Securities offered under this Offer Document and do everything necessary to procure that official quotation is granted for the Stapled Securities on ASX. BBWP has undertaken that neither it nor any of its subsidiaries will (without the prior written consent of the Underwriters which consent will not be unreasonably withheld or delayed) make, agree to make or announce any issues of units or shares or other securities that are convertible or exchangeable into equity, or that represent the right to receive equity, of BBWP for a period of six months after the Allotment Date, other than any issue referred to in this Offer Document. Fees and Expenses Each of the Underwriters will be paid an underwriting fee (See Section 8.1) and will be reimbursed for reasonable costs and expenses. The Underwriters must pay any sub-underwriting and co-managers fees out of the fees payable to them referred to in Section 8.1. The Underwriters fees described in Section 8.1 are not payable where the Underwriting Agreement is terminated. BBWP is responsible for the reasonable costs and expenses of the Underwriters in relation to the Offer in any event. Termination Events Each Underwriter may terminate its obligations under the Underwriting Agreement at any time up to 5.00pm on the Shortfall Application Date, upon the occurrence of the following events: a) the S&P / ASX 200 Index is at any time more than 15% below its level as at close of business on the business day immediately preceding the date of the underwriting agreement 144

147 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT b) ASIC gives notice of an intention to hold a hearing or issues an order under section 739(1) or section 1020E(2) of the Corporations Act or an interim order under section 739(3) or section 1020E(5) of the Corporations Act or ASIC applies for an order under sections 1324B or 1325 of the Corporations Act in relation to this Offer Document or gives notice of an intention to prosecute either a BBWP entity or its directors (in each case where the relevant order, notice or application is not withdrawn within two business days without the matter having become public) c) Unconditional approval (or conditional approval, provided such condition is customary or would not, in the reasonable opinion of the Underwriters, have a material adverse effect on the success or settlement of the Offer) by ASX to the official quotation of the Stapled Securities is refused, or is not granted before the Shortfall Application Date (or such later date agreed in writing by the Underwriters in their absolute discretion) or is withdrawn on or before the Shortfall Application Date d) any person (other than the Underwriters) whose consent to the issue of the Offer Document is required by the Corporations Act refuses to give their consent or having previously consented to the issue of the Offer Document withdraws such consent e) BBWP fails to lodge this Offer Document with ASIC on or before 26 September 2005 (or such later date approved in writing by the Underwriters) f) the content of a certificate which is required to be furnished by BBWP under the Underwriting Agreement is untrue, incorrect or misleading in a material respect, or the certificate is not furnished as required g) any of the following occurs: a. any material adverse change or disruption to the political conditions or financial markets of Australia, the United kingdom, the United States of America or the international financial markets or any change or development involving a prospective change in national or international political, financial or economic conditions; b. a general moratorium on commercial banking activities in Australia, the United States of America or the United kingdom is declared by the relevant central banking authority in any of those countries, or there is a material disruption in commercial banking or security settlement or clearance services in any of those countries; or c. trading in all securities quoted or listed on ASX, the London Stock Exchange or the New York Stock Exchange is suspended or limited in a material respect for one day on which that exchange is open for trading, in each case the effect of which is such as to make it, in the reasonable opinion of the Underwriter reached in good faith, impracticable to market the Offer or to enforce contracts to issue and allot the new Stapled Securities or is reasonably likely to materially and adversely affect the success of the Offer h) any of the following occurs: a. an order or an application is made, or a resolution is passed, for the winding-up, dissolution or administration of any Issuer b. any Issuer institutes any proceedings or arrangements for the liquidation or, or the appointment of a receiver to any Issuer c. a receiver, receiver and manager, administrator or similar officer is appointed over, or a distress or execution is levied over, the assets of any Issuer d. any Issuer suspends payment of its debts or is unable to pay its debts as and when they fall due e. any Issuer makes or offers to make an arrangement with its creditors or a class of them; i) Any event specified in the Offer timetable is delayed for more than four business days (unless such delay is with the written consent of the Underwriters, not to be unreasonably withheld) j) BBWP withdraws the Offer Document, any supplementary prospectus and product disclosure statement or any part of the Offer without the consent of the Underwriters k) the Offer Document omits any material information required by the Corporations Act (as varied by any ASIC modifications), contains a statement which is materially misleading or deceptive or otherwise fails to comply with the Corporations Act (as varied by any ASIC modifications) 145

148 12 MATERIAL CONTRACTS l) A representation or warranty made or given or deemed by the provisions of the Underwriting Agreement to have been made or given by BBWPL, BBWPB or the Responsible Entity under the Underwriting Agreement proves to be, or has been, or becomes, untrue or incorrect or BBWPL, BBWPB or the Responsible Entity fails to perform or observe any of its obligations under the Underwriting Agreement m) Any of the material contracts summarised in this Offer Document is terminated (whether by breach or otherwise), rescinded, altered or amended in a material respect, without the prior written consent of the Underwriters (which shall not be unreasonably withheld) or is found to be void or voidable or if any of those material contracts are not signed by the date of the Offer Document, then any of them are not signed or are signed in a form materially different from the summary n) without the prior written consent of the Underwriters (which consent shall not be unreasonably withheld or delayed) BBWP alters its share capital or BBWPL, BBWPB or BBWPT alters their Constitutions in any material respect other than amendments to facilitate the Offer (in a form approved by the Underwriters, such approval not to be unreasonably withheld or delayed) and approved at a general meeting of Securityholders o) A contravention in a material respect by BBWPL, BBWPB or BBWPT of any provision of their constitutions, the Corporations Act or any requirement of ASX or any other applicable law (except to the extent that compliance with any applicable law has been waived, or an exemption or modification granted, by a Government Agency having authority to do so) p) A Director is charged with an indictable offence relating to any financial or corporate matter, a regulatory body commences any public action against a Director in his or her capacity as a Director or has announced that it intends to take any such action, or a Director is disqualified from managing a corporation under the Corporations Act. q) Hostilities not presently existing commence (whether or not war has been declared) or a major escalation in existing hostilities occurs (whether or not war has been declared) involving any one or more of Australia, the United States of America, any member state of The European Union, Indonesia, Japan, Russia, The Peoples Republic of China, North korea or South korea, or a significant terrorist act is perpetrated anywhere in the world. An Underwriter may not terminate its obligations under the Underwriting Agreement on the basis of any of the events set out in paragraph (l) to (q) above, unless, in the reasonable opinion of the Underwriter, the event: a) has, or is likely to have, a material adverse effect on the financial condition, financial position or financial prospects of BBWP, or on the market price of the Stapled Securities or on the success, marketing or settlement of the Offer; or b) leads, or is likely to lead: (i) to a contravention by the Underwriters of, or the Underwriters being involved in a contravention of, the Corporations Act or any other applicable law; or (ii) to a liability for the Underwriters under the Corporations Act or any other applicable law If an Underwriter terminates its obligations under the agreement, it is relieved of its obligations under the agreement and is entitled to payment and reimbursement of its expenses. The exercise of rights to terminate by one Underwriter does not automatically terminate the obligations of the other Underwriters. Repricing circumstances If at any time in the period from (and including) the date of the agreement to 5.00 pm on the Shortfall Application Date: a) a supplementary or replacement combined prospectus or product disclosure statement ( Supplementary Disclosure Document ) is in the reasonable opinion of the Underwriters, required under the Corporations Act; or b) BBWP lodges a Supplementary Disclosure Document, in each case in respect of a matter which, in the reasonable opinion of the Underwriters, would be materially adverse from the point of view of an investor such that in the reasonable opinion of the Underwriters the level of applications for new Stapled Securities likely to be received under the Offer Document would be adversely impacted (a Repricing Circumstance ), then, BBWP and the Underwriters will as soon as possible after becoming aware of a Repricing Circumstance meet in good faith to discuss the implications of the Repricing Circumstance and if required seek to agree an appropriate adjustment to the Offer Price and, if necessary, to endeavour to obtain any necessary approval of 146

149 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT existing investors in BBWP to amend the Trust Constitution to accommodate the adjustment, where the price of each Unit is proposed to be reduced below the price set in the Trust Constitution. If BBWP and the Underwriters are unable to reach agreement as to the adjustment to the Offer Price within a reasonable period of time (not exceeding 24 hours) after BBWP becomes aware of the Repricing Circumstance (such period to be determined having regard to the period from the date of the occurrence of the event to the Shortfall Application Date) then: a) BBWP shall, if a Supplementary Disclosure Document has not been lodged, take all steps necessary to disclose immediately to ASX all information reasonably required by the Underwriters; b) the proposed adjustment to the Offer Price shall be determined by the Underwriters acting in good faith and reasonably, and having first consulted with BBWP, having regard to, among other things, the nature of the Repricing Circumstance, the levels of continuing commitments to subscribe or sub-underwrite and the market price and liquidity of the Stapled Securities following the supplementary disclosure; and c) to the extent that approval of existing investors in BBWP is required to amend the BBWPT constitution to accommodate the adjustment, where the price of each Unit is proposed to be reduced below the price set in the BBWPT constitution, BBWP shall take appropriate steps to seek approval of the existing investors at its own cost. Where the approval of existing investors in BBWP is sought as contemplated above, but is not obtained, the Underwriters may terminate the agreement. If the proposed adjustment to the Offer Price determined by these processes is downward by 20% of the Offer Price, BBWP may terminate the Underwriting Agreement in which event the provisions in the agreement relating to the effect of termination apply mutatis mutandis as if the Underwriters had terminated the agreement. Where the approval of existing investors in BBWP is sought as contemplated above, but is not obtained, the Underwriters may terminate the Underwriting Agreement. Indemnity BBWP has indemnified each Underwriter, its officers, employees, advisers and related bodies corporate (as that term is defined in the Corporations Act) ( Indemnified Parties ) against claims, demands, damages, losses, costs, expenses and liabilities directly or indirectly suffered by an Indemnified Party arising out of or in connection with: a) the Offer Document, including statements made in this Offer Document being misleading, deceptive or untrue, or omission of information required to be contained in this Offer Document, and any settlement of litigation or investigation or proceeding by any governmental authority, or of claims based on such misleading or deceptive statement or omission provided the settlement is reasonable or consented to by BBWP, and expenses reasonably incurred in investigating or defending any such litigation b) BBWP s failure to perform its obligations under the underwriting agreement c) BBWP s non-compliance with any statutory or governmental authority requirement concerning the Offer or the Offer Document d) any misrepresentations or breaches of undertakings by BBWP under the underwriting agreement e) announcements, advertisements or publicity distributed by or on behalf of an Indemnified Party in relation to the Offer with the written approval of BBWP f) any claim that an Indemnified Party has liability under the Corporations Act, the Australian Securities and Investments Commission Act 2001 (Cth) or any other applicable law or similar legislation applying to the Offer other than where they result from any wilful default, negligence, fraud, lack of good faith or wilful misconduct of that Indemnified Party or failure of an Indemnified Party to perform its obligations under the underwriting agreement. BBWP s rights to make claims against the Indemnified Parties in respect of their participation in the preparation of the Offer Document or in relation to the Offer, are limited to those losses which are determined by final judgment of a court of competent jurisdiction to be attributable to the wilful default, fraud, negligence, lack of good faith or wilful misconduct of the Indemnified Party, or failure to perform or observe obligations or undertakings binding on 147

150 12 MATERIAL CONTRACTS the Indemnified Party under the underwriting agreement (other than a failure to perform or observe obligations or undertakings arising primarily as a result of a breach by BBWP of the underwriting agreement any applicable law, or as a result of an Indemnified Party acting on any instruction of BBWP or any of their officers, employees or advisers). BBWP has agreed that no claim may be made by it against any director, officer or employee of an Underwriter. BBWP has further agreed that the Indemnified Parties are not liable for any indirect or consequential loss. BBWP and the Underwriters may have an obligation to make a proportional contribution in respect of a loss where the indemnities in the underwriting agreement are unavailable or insufficient to hold harmless that Indemnified Party against that loss offer Financial advisory Mandate letter Each of BBWPL, BBWPS as Responsible Entity and BBWPB (each a relevant BBWP entity) has appointed BBA as its exclusive financial adviser in relation to the Offer and certain other transactions preparatory or related to the Offer, including the Australian Acquisitions, the US Acquisitions, the stapling of BBWPB to create a triple stapled structure and the Framework Agreements. The fees payable for the services provided under this agreement are described in Section 8.2. The agreement terminates on listing of each of BBWPL, BBWPS as Responsible Entity and BBWPB unless listing has not occurred by 30 June 2007 or BBWP advises that it is unwilling or unable to proceed with the Offer. BBWP has agreed to indemnify BBA and its officers, employees and agents for reasonable costs and expenses of BBA as a result of performing the services other than overheads and where these arise because of the negligence, default, fraud or dishonesty or breach of the terms of the agreement by BBA or its officers, employees and agents. Babcock & Brown s liability is limited to circumstances where it is has acted in bad faith or there is a material breach of the terms of the agreement by Babcock & Brown retention agreement / Voluntary escrow arrangements Babcock & Brown BBAI and BBWPS (in its personal capacity), subsidiaries of Babcock & Brown, have entered into a voluntary restriction agreement with BBWP, in respect of all of the Stapled Securities that will be held by BBAI or BBWPS (in its personal capacity) at the time of listing, provided that no restriction applies to any Stapled Securities acquired by any Babcock & Brown entity pursuant to the Underwriting Agreement. Babcock & Brown is not, and will not be, a party to the voluntary restriction agreement unless required by ASX. The agreement is substantially in the form of Appendix 9A to the ASX Listing Rules (except that the standard warranty that BBAI or BBWPS has no controller and the restriction on granting security in respect of the relevant Stapled Securities have been deleted and an obligation to use reasonable endeavours to procure that its controllers enter into a similar agreement if required to do so by ASX inserted) and applies for a period of six months or such longer period as ASX may require. The voluntary restriction may be waived at any time by the Joint Bookrunners, and the relevant Stapled Securities may be transferred amongst the Babcock & Brown Group at any time, subject to any ASX requirements. Walkaway Under the Walkaway Acquisition Agreement, the Minority Interest Holders agreed to place a holding lock on the Walkaway Purchase Price Securities for a period of 3 months in the case of Carbon Solutions and 6 months in the case of B&B Power 5 Pty Ltd and NPPII. The holding lock prohibits the transfer of these securities during the holding lock period. LB2 Under the LB2 Acquisition Agreement, the LB2 vendors agreed to place a holding lock on the LB2 Consideration Securities until the later of 6 months and LB2 Financial Close. The LB2 Vendors have agreed not to transfer or create any encumbrance over the LB2 Consideration Securities prior to the later of 6 months and LB2 Financial Close. 148

151 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 12.3 Material ContraCts relating to initial portfolio australia lake Bonney 1 Project Document Where to find in Appendix 3 Construction contract Operation & maintenance agreement Vestas guarantee Power purchase agreement Transmission connection agreement Land leases Management services agreement Debt facilities agreement A3.1.1 A3.1.2 A3.1.3 A3.1.4 A3.1.5 A3.1.6 A3.1.7 A lake Bonney 2: Material Contracts LB2 Acquisition Agreement The LB2 Vendors comprising a subsidiary of Babcock & Brown and a subsidiary of National Power Partners LLC entered into a share sale and project development agreement (the lb2 acquisition agreement ) on 14 September 2005 with BBWPL and BBWPT ( lb2 purchasers ) for the purposes of (a) selling their indirect interests in LB2 Co and (b) undertaking to develop the Lake Bonney Stage 2 wind farm project to LB2 Financial Close. The purchase price payable by BBWPL under the agreement is A$20 million ( lb2 purchase price ). In satisfaction of the obligation to pay the LB2 Purchase Price, BBWPL has issued 7,142,857 BBWPL shares and BBWPS has issued 7,142,857 Units to each of the LB2 Vendors ( lb2 Consideration securities ). The LB2 Vendors must use best endeavours to develop the Lake Bonney Stage 2 wind farm project to LB2 Financial Close as soon as possible. BBWPL has agreed to pay third party costs of the LB2 Vendors in developing the project to the point of LB2 Financial Close. The LB2 Vendors have agreed not to transfer or create any encumbrance over the LB2 Consideration Securities prior to LB2 Financial Close. The LB2 Vendors have each executed a restriction agreement (contemplated by the ASX Listing Rules) in relation to the LB2 Consideration Securities. These securities are also subject to a holding lock arrangement for the period to LB2 Financial Close. If the LB2 Vendors have not achieved LB2 Financial Close within 12 months of the date of the LB2 Acquisition Agreement, then the LB2 Vendors must satisfy BBWPL that they are likely to achieve LB2 Financial Close within a further 6 months. If BBWPL is not so satisfied or if the LB2 Vendors do not develop the project to the point of LB2 Financial Close within 18 months of the date of the LB2 Acquisition Agreement, BBWPL will be entitled to sell the stakeholdings acquired pursuant to the LB2 Acquisition Agreement back to the LB2 Vendors. BBWPL s rights against the LB2 Vendors are limited to enforcement of the obligation on the LB2 Vendors to achieve LB2 Financial Close and the exercise of its rights to sell the stakeholdings acquired pursuant to the LB2 Acquisition Agreement back to the LB2 Vendors. In this event, BBWPL may exercise a power of sale over the LB2 Consideration Securities and any proceeds will be remitted to BBWP or BBWPL may cancel and procure the cancellation of the LB2 Consideration Securities. The LB2 Acquisition Agreement contains purchase price adjustment mechanics. The LB2 Purchase Price is based on an estimated valuation derived from a base case agreed under the LB2 Acquisition Agreement. At LB2 Financial Close the variables used for the purposes of LB2 Financial Close are inserted into the valuation model to produce an adjusted valuation. If the estimated valuation is less than the adjusted valuation, then BBWPL must pay the difference in cash to the LB2 Vendors. If the adjusted valuation is less than the estimated valuation, then the LB2 Vendors must each pay in cash 50% of the difference. The LB2 Acquisition Agreement contains warranties of the LB2 Vendors in relation to the holding companies of LB2Co acquired by BBWPL pursuant to the LB2 Acquisition Agreement and to LB2 Co. The LB2 Vendors are not liable for any claim, including a breach of warranty, arising out of the agreement in certain limited circumstances such as a failure to comply with the mechanics for notification of claims, change in law and matters of which the LB2 Purchasers were 149

152 12 MATERIAL CONTRACTS aware before the date of the agreement. The LB2 Vendors indemnify each of the LB2 Purchasers against any loss incurred as a result of breaches of representations and warranties. Claims made by the LB2 Purchasers are subject to a de minimis threshold as regards a single claim and aggregated claims. Each LB2 Vendor s total liability is limited to half of the LB2 Purchase Price. In addition, the LB2 Vendors exclude liability for all consequential loss. Each of the LB2 Purchasers has given limited warranties under the agreement. The LB2 Purchasers indemnify each of the LB2 Vendors against any loss incurred as a result of breaches of representations and warranties. Claims made by the LB2 Vendors are subject to the same de minimis threshold as regards a single claim and aggregated claims as the LB2 Purchasers have agreed to be subject to. The LB2 Purchasers total liability is limited to half of the LB2 Purchase Price. In addition, the LB2 Purchasers exclude liability for all consequential loss. The agreement is governed by the laws of Victoria, Australia. LB2 Procurement Agreement LB2 Co is a party to a procurement agreement with B&B Windpower pursuant to which B&B Windpower is obliged to use its best endeavours to procure, for LB2 Co, land leases required to carry out the Lake Bonney Stage 2 wind farm project alinta Wind Farm 1 Walkaway Acquisition Agreement The Minority Interest Holders, comprising B&B Power 5 Pty Ltd, Carbon Solutions and NPP Projects II LLC entered into a sale and purchase agreement (the Walkaway acquisition agreement ) on 14 September 2005 with, among others, BBWPL, the Responsible Entity and the Custodian. Under the terms of the agreement, the Minority Interest Holders agreed to sell to BBWPL and the Custodian their interests in vehicles ( Holding Vehicles ) through which they invested in RPV Investment Trust which owns 25% of WWP. The purchase price payable by BBWPL and BBWPT under the agreement is A$48 million ( Walkaway purchase price ). In satisfaction of its obligation to pay the Walkaway Purchase Price, BBWPL has issued 34,285,712 BBWPL Shares in aggregate and BBWPS has issued 34,285,712 Units in aggregate to the Minority Interest Holders ( Walkaway purchase price securities ). Each of the Minority Interest Holders has only given warranties in relation to the shares and units in the Holding Vehicles of which it is the vendor and the RPV Investment Trust. The warranties include warranties as to title and the assets and liabilities of the Holding Vehicles and are subject to qualifications as to materiality and vendor knowledge. The Minority Interest Holders are not liable for any claim, including a breach of warranty, arising out of the agreement in certain limited circumstances such as a failure to comply with the mechanics for notification of claims, change in law and matters of which the purchasers were aware before the date of the agreement. Each of the Minority Interest Holders agrees to indemnify each purchaser against any loss incurred as a result of breaches of representations and warranties. Claims made by the purchasers are subject to a de minimis threshold as regards a single claim and aggregated claims. Each Minority Interest Holder s total liability is limited to approximately its share of the Walkaway Purchase Price. Each of the purchasers has given limited warranties under the agreement. The purchasers agree to indemnify each of the Minority Interest Holders against any loss incurred as a result of breaches of representations and warranties. Claims made by the Minority Interest Holders are subject to the same de minimis threshold as regards a single claim and aggregated claims as the LB2 Purchasers have agreed to be subject to. The purchasers total liability is limited to the same threshold as for a Minority Interest Holder. In addition, the purchasers exclude liability for all consequential loss. The Minority Interest Holders also exclude all liability for consequential loss. The agreement is governed by the laws of Victoria, Australia. 150

153 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 2 Wind Farm Project Documents Project Document Where to find in Appendix 3 Construction contract Service & maintenance agreement Vestas guarantees Power purchase agreement Renewable energy certificates purchase agreement with Alinta Sales Renewable energy certificates purchase agreement with AGL Electricity Transmission connection agreement Land leases Easement access agreement Debt facilities agreement Construction management services agreement Operation management services agreement A3.2.1 A3.2.2 A3.2.3 A3.2.4 A3.2.5 A3.2.6 A3.2.7 A3.2.8 A3.2.9 A A A europe a. spain olivo portfolio Project Document Where to find in Appendix 3 share purchase agreement & ancillary agreements A3.3.1 Share sale and purchase deed A3.3.1(a) Commercial loan agreement ` A3.3.1(b) Agreement for representation as retail agent in electricity market A3.3.1(c) Services agreements A3.3.1(d) Contract for operation and full maintenance of wind farm A3.3.1(e) Complementary agreement to turnkey agreement A3.3.1(f) Complementary agreement to turnkey agreement (excl. wind turbines) A3.3.1(g) Construction agreements A3.3.2 Turnkey agreements for supply, assembly and start-up of wind turbines A3.3.2(a) Turnkey agreements for civil works and related infrastructure A3.3.2(b) Power sales agreements A3.3.3 Energy supply agreements A3.3.4 Market Operator (OMEL) agreements A3.3.5 Grid connection agreements A3.3.6 Agreement for the connection and use of electrical infrastructure for energy discharge A3.3.7 Reactive compensation agreements A3.3.8 Land agreements A3.3.9 Long term facility agreement A Working capital facility agreement (Wind Farm) A Working capital facility agreement (Olivento) A VAT loan agreement A

154 12 MATERIAL CONTRACTS B. germany niederrhein Wind Farms Project Document Where to find in Appendix 3 Limited partnership General contractor agreement Maintenance agreement Operating agreement Agreements with utility companies Project assumption agreement and contract on the acquisition of Niederrhein Project Company Contracts of use (land) Credit agreement A3.4.1 A3.4.2 A3.4.3 A3.4.4 A3.4.5 A3.4.6 A3.4.7 A3.4.8 United states of america Us asset structure An overview of the structure of the interests in the US Assets is described in Section 6.6. Aspects of the structure of the US Assets are discussed in this Section Funding Each Project LLC is funded on a stand-alone, non-recourse basis. The financing of each wind farm is undertaken in 2 steps: first construction debt financing and then long-term equity financing. The construction debt financing (typically provided by the project sponsor and commercial banks) is repaid at the end of construction with the proceeds of the long-term equity funding. The long term equity funding is contributed by the Class A Members and the Class B Members in proportions which vary from project-to-project but typically in the ratio of 75:25. Economic interests of Class A and Class B Members The economic interests consist of 2 categories: allocation of tax benefits (including taxable income plus PTCs) and cash distributions. A summary of the return profile for the wind farms in the US which are to be acquired pursuant to the US Acquisition is presented in Figure Figure : Return Profile of US Asset After Class B Capital Repaid Until Class B and until Post Capital repaid Reallocation Date Reallocation Date Class A All tax benefits All tax benefits approx. 20% of and all cash tax benefits and distributions cash distributions Class B (includes BBWp s all cash nil approx. 80%* of indirect interest) distributions tax benefits and cash distributions * Actual post Reallocation Date allocation to Class B Members across the portfolio ranges between approx 75% to 85% 152

155 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Class A Members are allocated 100% of the tax benefits of a Project LLC and after Class B capital is repaid, all cash distributions until a target return is achieved ( reallocation date ) at which time their portion of the allocation of tax benefits and cash is reduced to approximately 15% 25% and the remaining 75% 85% is allocated to the Class B Members (including indirectly BBWP). The Class A Members receive a significant portion of their return on investment from the allocation of PTCs to them (available during the first 10 years of operation calculated on the electricity sales of a windfarm) and by depreciation deductions on plant & equipment. Because the Class A Members are allocated all of the tax benefits prior to the Reallocation Date, the Class A Members may receive more of their economic return through tax benefits than as a direct cash return. The Class B Members (including indirectly BBWP) receive 100% of the cash distributions until the earlier of the point where (i) they have received cash in an amount equal to 100% of their initial capital investment made at the time of funding the long term equity to the Project LLC and (ii) a specified date that is later than the date when 100% of Class B initial capital investment is expected to have been repaid. Thereafter, until the Reallocation Date, the Class A Members receive 100% of the cash distributions. After the Reallocation Date the cash distributions are split between the Class A Members and the Class B Members (including indirectly BBWP) in the same proportion as the taxable income and PTCs (if any) are split after the Reallocation Date. As the Class A Members and the Class B Members contributed long term equity funding at the commencement of operations, their investment was prior to, and is therefore different in quantum from, the investment made by BBWP pursuant to the US Acquisition to acquire indirect interests in the Class B Memberships interests held by the Investment LLCs. The initial Class B capital investment of each Investment LLC to be repaid by each Project LLC is not the same amount as that which BBWP has invested in BBWPUS. In addition, the terms on which the capital contribution of the Class B Members is repaid differs from the terms on which BBWP s capital contribution is repayable under the BBWPUS LLC Agreement. Managing member of Project LLC Each Project LLC is managed by a management committee comprised only of the Class B members (this is the class in which BBWP is indirectly investing). Decisions are made by majority vote so typically no Class B Member has a controlling position in cases where there are more than one Class B Member. Each of the Investment LLCs, as a Class B Member of a Project LLC, is either the sole managing member or the co-managing member of the Project LLC. The duties of the managing member(s) consist principally of the selection and supervision of contractors and service providers to the Project LLC, including the O&M contractor, the Project Administrator and the Fiscal Administrator, and communicating with investors (Class A Members). Approval of major decisions, such as financing, asset disposition and modifications to key agreements depends upon the stage of the investment, namely whether before or after the Reallocation Date. Prior to the Reallocation Date, major decisions require the approval of a supermajority which varies by Project LLC. After the Reallocation Date, major decisions require the approval of a majority of interest in the rights to distributable cash; accordingly such decisions are within the control of the Class B Members if they act together. The management committee must prepare an annual budget for approval with voting as set out above. Important aspects to structure of the US Acquisition As between the members of BBWPUS, major decisions require the approval of a supermajority which is designed to allow the holders of the 20% economic interest to block decisions. Consequently, BBWP s membership interest in BBWPUS does not represent a controlling interest in BBWPUS. Under the US Acquisition Agreement, BBWP has granted pre-emptive rights over its 80% economic interest in BBWPUS to the US Vendor. In return, BBWP has pre-emptive rights over the 20% economic interest in BBWPUS of the US Vendor. In addition, as a condition to completion of the US Acquisition, BBWP will provide the US Guarantees. The key terms and potential impact of these pre-emptive rights and the US Guarantees are described in Section and Section Under a Project LLC Agreement (see Section ), other members in that Project LLC have the benefit of change of control provisions. The nature and potential impact of these is described in Section Babcock & Brown may choose to sell the 20% interest it retains in Caprock to a third party without seeking the prior consent of BBWP, but must do so prior to completion of the US Acquisition. 153

156 12 MATERIAL CONTRACTS Accounting for and earnings trend of the US Assets BBWP s investment in BBWPUS does not represent a controlling interest. Given BBWP s restricted ability to influence financial and operating decisions and the respective roles of BBWP and other members of BBWPUS, BBWP s investment in BBWPUS qualifies as an associate and will be accounted for using the equity method. BBWP will initially record its investment at cost and subsequently adjust for its proportionate interest in post-acquisition changes in the net assets of BBWPUS. The initial investment made by the Class B Members in each of the Project LLCs, in which BBWP will acquire an indirect interest through BBWPUS, represents typically 25% of the total capital contributions of the Class A Members and Class B Members as a whole. However, given the profile of returns, the roles of the respective members, and the operation of the management committee, the Investment LLCs (as Class B Members) are expected to account for the Project LLCs as associates. Equity accounted earnings that are recorded by the Investment LLCs as Class B Members will be determined by reference to period on period changes in their legal entitlement to the net assets of the Project LLCs, adjusted for distributions received. BBWP will recognise 80% of the equity accounted earnings that flow up to, and are recorded in, BBWPUS. Distributions by the Project LLCs, which are made in the period within which capital is repaid to Class B Members, necessarily reduce the net assets of the Project LLCs and hence the entitlement to those net assets by BBWPUS (and indirectly BBWP). In this period within which capital is repaid to Class B Members, distributions are greater than equity accounted earnings. In the subsequent period but prior to the Reallocation Date, Class B Members do not receive any distributions which results in an increase in equity accounted earnings recognised by Investment LLCs. Following the Reallocation Date Class B Members receive the majority of distributions which, again, reduce the net assets of the Project LLCs and hence the entitlement to those net assets by BBWPUS Us acquisition documents 1 US Acquisition Agreement Summary of Purchase BBWP (US) LLC, a Delaware limited liability company ( Us sub ) and BBPOP Wind Equity LLC, a Delaware limited liability company ( BBWE ) have entered into a Capital Contribution and Membership Interest Purchase and Sale Agreement, dated as of September 22, 2005 (the 04 agreement ) pursuant to which US SUB would acquire an 80% membership interest (the 04 Membership interest ) in Babcock & Brown Wind Partners-U.S. LLC ( BBWPUS ). Pursuant to such 04 Agreement, on the closing date, US SUB (i) will contribute cash to BBPWPUS in an amount sufficient to repay certain outstanding indebtedness of Wind Investment 1 and Wind Investment 2 (the Contribution amount ) and (ii) BBWE will cause BBWPUS to issue to BBWP a certain amount of the 04 Membership Interests as consideration for such Contribution Amount, (iii) BBWP will purchase a certain amount of the 04 Membership Interest from BBWE at the purchase price (referred to below), and (iv) BBWPUS will, out of the proceeds of the Contributed Amount, contribute such amounts to Wind Investment 1 and Wind Investment 2 so that each of them can repay certain of its outstanding debt. The purchase price to be paid by US SUB for the 04 Membership Interest shall be equal to US$65,650,000 minus the Contribution Amount (subject to purchase price adjustments prior to the closing based on (a) the actual date of closing and any distributions of dividends prior to closing and (b) potential exclusion of certain wind projects by US SUB where material adverse conditions have arisen). The payment of the purchase price is to be funded from the proceeds of the Offer (which will be lent to US SUB by BBWPL). Pending the receipt of such funds, BBWPL has entered into a currency hedging arrangement in respect of the amount of US$65,650,000. Following the consummation of the transaction described above, US SUB will hold 80.0% of the membership interests in BBWPUS. Closing Conditions Certain conditions need to be satisfied at completion of the sale and purchase which are fairly typical for a transaction of this kind. Conditions to closing include: Obtaining Federal Energy Regulatory Commission ( FERC ) approval Expiration of Hart-Scott Rodino ( HSR ) waiting period with no action taken by Federal Trade Commission ( FTC ) or the Department of Justice ( DJ ) Accuracy of warranties when repeated 154

157 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Compliance with certain obligations under the 04 Agreement, including simultaneous repayment of outstanding indebtedness and release of liens Delivery of counsels opinions, certificates, reports and other documents BBWPUS owning Wind Investment 1 and Wind Investment 2 and BBIM being its managing member (To be satisfied by Seller only) appointment of BBPOP as fiscal administrator of Combine Hills and Blue Canyon in place of Investment LLCs. No material adverse change in the nature of BBWPUS and its subsidiaries The Offer Termination The agreement may be terminated by either party if FERC approval is not obtained, if the HSR waiting period fails to expire due to FTC or DJ prohibiting the transaction or if the transaction has not closed by 31 January 2006 and by either party for a material breach of warranty or covenant which is not remedied. US SUB has the right to terminate the acquisition of an interest in a particular wind project if there has been (i) a material adverse change with respect to such wind project, or (ii) a breach by BBWE of any material representation, warranty or covenant made in the 04 Agreement with respect to such wind project. Representations, Warranties and Covenants The agreement contains representations and warranties by BBWE and US SUB which are fairly typical for a transaction of this kind and limitations are imposed on BBWE with regard to the pre-completion actions it can take with respect to BBWPUS and its subsidiaries. BBWE s representations and warranties relating to specific wind projects are generally qualified by BBWE s knowledge these include representations and warranties relating to BBWE s real property assets, compliance with laws, permits, environmental hazards and compliance, insurance and taxes. Prior to closing, BBWE covenants that it will conduct its business in the ordinary course substantially consistent with past practices and notify US SUB of any matter that could have a material impact on BBWE s business. BBWE further covenants with respect to the wind projects that it will not take certain major actions without the consent of US SUB, such as granting liens, make acquisitions of assets, making capital expenditures, entering into new material contracts (each with a minimum value threshold of US$100,000 for contracts and US$50,000 in all other cases). Sale of 20% Caprock Interest US SUB acknowledges that BBWE intends to sell a 20% interest in the Caprock wind project prior to Closing and to amend and restate the limited liability company agreement of the entity owning such project. US SUB has agreed to promptly approve such limited liability company agreement or any amendment thereof and not object to any form thereof which will not result in a material adverse effect on the Caprock wind project or US SUB s interest in Caprock. Indemnification The agreement contains an indemnity for loss from BBWE in respect of breaches of warranty or covenants unless they are fairly disclosed against or within the beneficiary s actual knowledge. Certain representations made by BBWE are excluded from BBWE s indemnity, including in relation to wind projects excluded from the acquisition at US SUB s election. BBWE has no indemnification obligation to the extent that the purchase price is adjusted to account for a claim or the claim is recovered from a third party. BBWE s maximum liability for claims in relation to a breach of its representations and warranties regarding organization and status, power; authority and enforceability, no violation or conflicts, ownership of the membership interests to be transferred, beneficial ownership of subsidiaries and wind projects and investments by its subsidiaries is limited to the adjusted purchase price. BBWE s maximum liability for all other claims (other than claims based on fraud, willful misconduct or intentional misrepresentation) is limited to 33% of the adjusted purchase price. Liability for breach of warranty is subject to a de minimis threshold which must first be reached in terms of the monetary value of a claim and an overall cap. A party s ability to claim in respect of breach of warranty is subject to a time bar on making claims. For most claims, the time bar is the greater of 1 year from the closing or until the completion of the audit for the tax year ended December 31, Certain other claims have specific survival periods, including claims relating to taxes, the environment (which has a 3-year time bar) or claims based on fraud, misconduct or intentional misrepresentation. US SUB has an obligation, at BBWE s expense, to use commercially reasonable efforts to mitigate losses relating to all claims. 155

158 12 MATERIAL CONTRACTS Limitation on US SUB s Liability US SUB s maximum liability exposure under the 04 Agreement other than for claims based on fraud, misconduct or intentional misrepresentation, is 10% of the adjusted purchase price. The agreement is governed by the laws of the State of New York, USA. 2 BBWPUS limited liability company agreement Parties BBWP (US) LLC ( Us sub ) will enter into an amended and restated limited liability company agreement governing Babcock & Brown Wind Partners-U.S. LLC ( BBWPUS ) with BBWE and BBIM to take effect at completion of the US Acquisition ( BBWpUs llc agreement ). Each of US SUB and BBWE is a non-managing member. BBIM is appointed as the managing member. Purpose The purpose of BBWPUS is to acquire, own, manage and operate wind farms in the United States and associated businesses, to sell electricity and renewable energy credits and perform contracts in connection with those wind farms. Term Under the agreement BBWPUS shall be in existence until the last day of Capital Contributions BBWE will make a cash capital contribution to BBWPUS and contribute its membership interests in Wind Investment 1 and Wind Investment 2 to BBWPUS. US SUB will acquire its membership interests in BBWPUS by making a cash capital contribution to BBWPUS, which amount was used to pay off existing debt of the BBWPUS s subsidiaries. US SUB will also purchase additional membership interests in BBWPUS from BBWE. US SUB holds 80% and BBWE holds 20% of all membership interests in BBWPUS. A member cannot withdraw its capital contribution or receive distributions except in accordance with the agreement. Management Fundamental decisions require the consent of both non-managing members, including (i) causing BBWPUS to take engage in any other business activities outside the scope of the agreement or altering the purpose of BBWPUS, (ii) selling all or substantially all of BBWPUS s assets, and (iii) dissolving, merging or liquidating BBWPUS. Decisions requiring the consent of 85% of outstanding membership interests, include, among other things, decisions such as (i) incurring or guarantying any indebtedness on a secured basis or unsecured indebtedness in excess of a certain minimum amount, (ii) encumbering any assets of BBWPUS, (iii) selling, assigning or leasing assets of the BBWPUS above a certain minimum amount, (iv) entering into any joint ventures, (v) hiring employees or adopting new bonus compensation plans or (vi) changing BBWPUS s accounting methods currently in effect. The management of BBWPUS is vested in the managing member. The managing member must keep the books and records of BBWPUS and represent the company in its tax affairs. The Managing Member cannot resign if US SUB is a member and controlled by BBBWPL but otherwise may resign upon 30 days written notice. If US SUB is not a member or is not controlled by BBWPL, the Managing Member may be removed without cause upon consent of holders of 85% of outstanding membership interests or with cause upon consent of a majority of outstanding membership interests. The managing member is entitled to monthly reimbursement for actual out of pockets expenses but is not otherwise entitled to any remuneration. 156 Transfers; Pre-emptive Rights A member s rights to transfer its interests in BBWPUS are limited to the circumstances set out in the agreement. Transfers are prohibited without the consent of all members holding greater than 0% economic interests except for transfers that comply with the pre-emptive rights provisions and will not have securities or investment company or tax law implications or trigger a default under an agreement to which BBWPUS or subsidiary or wind project entity is a party. Each of BBWE and US SUB has the benefit of pre-emptive rights as regards the other s membership interest consisting of a right of first offer at fair market value and a right of first refusal in the event the selling member fails to sell its interest at a price at or above fair market value if the other members decline their right to first offer.

159 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT a) Right of First Offer. If a member desires to sell its membership interest, the other economic members shall have the opportunity for 30 days after receiving notice to acquire the selling member s interest at fair market value as determined by an appraiser (subject to the selling member s right to withdraw such offer upon the appraiser s determination of fair market value of the interest to be sold). If the selling member declines to sell its interest after learning of the appraiser s valuation, it may not sell its membership interest to any other person for a period of 6 months. If the buying member declines to purchase the interest after learning of the valuation given by the appraiser, the selling member may sell to third parties provided it consummates such sale within 6 weeks after the buying member declines to purchase such interest. b) Right of First Refusal. If the member desiring to sell cannot sell its interest at or above the fair market value within six weeks of another member declining to buy at fair market value, it may sell at a lower price provided that the buying member who previously declined to buy has a right of first refusal to acquire such interests at the revised offer price. The buying member shall have 30 days to consider such price after receiving notice from the selling member and shall have 15 days after notifying BBWE of its intention to buy to execute a purchase contract. If the buying member fails to follow the procedures outlined in the agreement, the selling member can sell its interest freely to third parties. c) No transfer by US SUB shall be made unless (i) the Back-to-Back Guarantees (refer below) remain in full force and effect, or (ii) the Back-to-Back Guarantees are replaced by guarantees in substantially the same form as the Back-to- Back Guarantees by a party or parties acceptable to the beneficiaries of the Back-to-Back Guarantees. d) Upstream Change of Control. If BBWP ceases to be managed by a Babcock & Brown associate or US SUB ceases to be a subsidiary of BBWP or BBWP is subject to a takeover bid or scheme of arrangement which would, if successful, result in a change in control, then the other members shall have certain preemptive rights to purchase such membership interests. Indemnification BBWPUS shall indemnify each member and each of their affiliates against all claims or losses relating to BBWPUS s affairs or their status as member. Any indemnification shall only be from the assets of BBWPUS. The agreement is governed by the laws of the State of Delaware, USA. 3 Back-to-Back Guarantees Each of BBWPL and BBWPS (as Responsible Entity) (together, the guarantors ) will enter into guarantees (the Back-to-Back guarantees ) in favor of Babcock & Brown International Pty Ltd and/or Babcock & Brown LP (the Beneficiaries ). The Back-to-Back Guarantees support guarantees ( downstream guarantees ) given by the Beneficiaries to support the obligations of Investments LLCs as Class B Members of certain project companies that own and operate wind farm projects in the United States in favour of the Class A Members of those project companies. The Back-to-Back Guarantees guarantee the payment of 80% (or, in the case of a certain guarantee in respect of Babcock & Brown Caprock LLC ( BBC ), 64%) of the Beneficiaries obligations paid from time to time under the relevant Downstream Guarantee that arise as a result of a breach of the covenants of a Investment LLC, acting in its capacity as the managing member or tax matters partner under the relevant limited liability company agreement of the project company (the project llc agreement ). The guaranteed obligations under the Back-to-Back Guarantees do not cover the obligations of the Beneficiaries under the Downstream Guarantees arising as a result of any of the following: Breach of any representation or warranty by the relevant Investment LLC or its affiliates under the relevant Project LLC Agreement or in the relevant equity capital contribution agreement by and among such Investment LLC, the relevant project company and the relevant Class A Members. The non-performance of any obligations of an administrator under the relevant project administration agreement by BBPOP or any of its affiliates or the non-performance of any obligations of the tax matters member by the relevant Investment LLC. Breach of covenants of any Investment LLC, acting in its capacity as the managing member of the tax matters partner under the relevant Project LLC Agreement resulting from (i) any action taken with respect to a matter as to which BBWP (US) LLC (or its downstream affiliates) had a right under the BBWPUS LLC Agreement to vote 157

160 12 MATERIAL CONTRACTS its membership interest and voted its membership interest against the taking of such action; or (ii) the failure to take any action with respect to a matter as to which BBWP (US) LLC (or its downstream affiliates) had a right under the BBWPUS LLC Agreement to vote its membership interest and voted its membership interest in favour of taking such action. The guarantees contain typical waivers of procedural defences found in unconditional guarantees that replicate the waivers found in the Downstream Guarantees. These include, among others, (i) the validity of the guaranteed obligations or agreements under which the guaranteed obligations arise, (ii) the insolvency, bankruptcy or liquidation or dissolution of the Guarantors, their affiliates, the Beneficiary, Babcock & Brown Wind Partners-U.S. LLC ( BBWPUS ) or any Investment LLC or other person, (iii) any claim, set-off or counterclaim or defence or other rights that Guarantors, their affiliates or BBWPUS may have against Beneficiary, BBIM or any Investment LLC, (iv) any default or failure on the part of any Investment LLC, BBIM, Beneficiary or other person to perform or comply with or the impossibility or illegality of performance by any Investment LLC, BBIM, Beneficiary or other person in respect of the Guarantee Obligations, (v) any suit or judgment in favour of beneficiaries or creditors of the BBWPUS, BBIM, any Investment LLC, the Beneficiaries or other person, including with respect to any issue in respect of any Project LLC Agreement, the Downstream Guarantee or Guarantee Obligations, (vi) any sale, lease or transfer of assets of the BBWPUS, BBIM, any Investment LLC, Beneficiaries or Guarantors, (vii) any act or failure to act which may deprive the Guarantor of its rights to subrogation against BBWPUS, BBIM or any Investment LLC to recover full indemnity for payments made under the Back-to-Back Guarantees, (viii) any extension or waiver of performance with any of the Guaranteed Obligations, or any modification of the Downstream Guarantees, or (ix) any other circumstances constituting legal or equitable discharge or defence of a guarantor. The Guarantors fully subrogate to all rights and remedies of the Beneficiaries in respect of any amounts paid by the Guarantors pursuant to the Back-to-Back Guarantees with respect to any rights and remedies that the Beneficiaries may have against other owners of class B Membership interests in the same project company. Guarantors shall fulfill their Guaranteed Obligations within 5 business days after receiving a certificate from the Beneficiaries that they have received a demand by the Class A Members under any Downstream Guarantee and setting forth additional reasonably detailed descriptions of such demand and any defences available to the Beneficiaries and advising whether the Beneficiaries intend to dispute any obligations under the Downstream Guarantees. Payments made later than 30 days after such certification bear interest at 6% p.a. The Guarantors and the Beneficiaries agree that Back-to-Back Guarantees are inapplicable to any covenant or agreement after the date of assignment to any entity that is not affiliated with the Guarantors or the date that any Investment LLC or Beneficiary ceases to be an affiliate of the Guarantors. The Guarantors liability under the Back-to-Back Guarantees is not to exceed the liability of the Beneficiaries under the Downstream Guarantees except for the reimbursement by the Guarantors of reasonable costs incurred by any Beneficiary in enforcing the Back-to-Back Guarantees. The Guarantors obligations are subject to the Subordination Deed Poll dated September 22, 2005 between the Beneficiaries and BBWPL in favour of BOS International (Australia) Limited, an Australian public company limited by shares ( BOS ), acting as agent under the Multi Option Facility Agreement dated as of September 23, 2005 by BOS and BBWPL. The Guarantors and the Beneficiaries acknowledge that the Downstream Guarantees contain provisions under which the Beneficiaries may receive a reimbursement or refund of amounts paid thereunder to the extent either that the owners of Class A Membership interests in the relevant project company are determined to have achieved a certain target rate of return under the relevant Project LLC Agreement or that the other owners of Class B Member interests are required to reimburse the Beneficiaries for payments under the Downstream Guarantees. If a Beneficiary receives such a refund, it shall refund to the relevant Guarantor such portion of the refund that is allocable to payments made by such Guarantor under the Back-to-Back Guarantees. The Back-to-Back Guarantees terminate upon the termination of the guarantee obligations of the Beneficiaries under the relevant Downstream Guarantee. The Back-to-Back Guarantees are governed by the laws of the State of New York, USA. BBWPS liability under the Back-to-Back Guarantees is limited to its capacity as trustee of BBWPT and not in any other capacity. BBWPS liability arising under the Back-to-Back Guarantees, in connection with any transaction or conduct contemplated by the Back-to-Back Guarantees or in connection with any representation or warranty under the Back-to-Back Guarantees is limited to all rights of BBWPS in respect of BBWPT including all real and personal property, 158

161 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT choses in action and goodwill of BBWPT (the Trust Property ). If BBWPS acts negligently, with willful misconduct or in breach of trust with a result that (i) BBWPS right of indemnity or recoupment out of the Trust Property or (ii) the actual amount recoverable by BBWPS in exercise of those rights is reduced, then to the extent of such right or amount recoverable, BBWPS may be personally liable for a claim. Amounts payable by BBWPL to BBWPS in connection with any other transaction (the Subordinated Debt ) is subordinated to all amounts due for payment by BBWPL to the Beneficiaries pursuant to the Back-to-Back Guarantees until all amounts have been paid in full under the Back-to-Back Guarantees or the Beneficiaries cease to be entitled to make demands under the Back-to-Back Guarantees. BBWPL may make payments for Subordinated Debt until the earlier of (i) a claim made by a Beneficiary under a Back-to-Back Guarantee that remains unsatisfied or (ii) the winding up of BBWPS as a consequence of BBPWS inability to exercise its right of indemnity or recoupment out of the Trust Property to satisfy any claim under the Back-to-Back Guarantee or the winding up of BBWPL Us Wind Farm project documents Sweetwater Stage 1 Project Document Where to find in Appendix 3 Limited liability company agreement of project company Turbine warranty agreement Operation & maintenance agreement Guarantee Power purchase agreement Interconnection (transmission connection) agreement Land easements A3.5.1(i) A3.5.1(ii) A3.5.1(iii) A3.5.1(iv) A3.5.1(v) A3.5.1(vi) A3.5.1(vii) Sweetwater Stage 2 Project Document Where to find in Appendix 3 Limited liability company agreement of project company Turbine warranty agreement Operation & maintenance agreement Guarantee Power purchase agreement Interconnection (transmission connection) agreement Land leases and easements A3.5.2(i) A3.5.2(ii) A3.5.2(iii) A3.5.2(iv) A3.5.2(v) A3.5.2(vi) A3.5.2(vii) Blue Canyon Stage 1 Project Document Where to find in Appendix 3 Limited liability company agreement of project company Turbine warranty agreement Operation & maintenance agreement Turbine guarantees Power purchase agreement Interconnection (transmission connection) agreement Land leases A3.5.3(i) A3.5.3(ii) A3.5.3(iii) A3.5.3(iv) A3.5.3(v) A3.5.3(vi) A3.5.3(vii) 159

162 12 MATERIAL CONTRACTS Caprock Project Document Where to find in Appendix 3 Limited liability company agreement of project company Construction contract Warranty agreements Turbine service agreement Operation & maintenance agreement Guarantee Power purchase agreement Interconnection (transmission connection) agreement Land leases and easements Letter of credit agreement A3.5.4(i) A3.5.4(ii) A3.5.4(iii) A3.5.4(iv) A3.5.4(v) A3.5.4(vi) A3.5.4(vii) A3.5.4(viii) A3.5.4(ix) A3.5.4(x) Combine Hills 1 Project Document Where to find in Appendix 3 Limited liability company agreement of project company Turbine warranty agreement Turbine service agreements Operation & maintenance agreement Guarantee Power purchase agreement Interconnection (transmission connection) agreement Land leases and easements A3.5.5(i) A3.5.5(ii) A3.5.5(iii) A3.5.5(iv) A3.5.5(v) A3.5.5(vi) A3.5.5(vii) A3.5.5(viii) 160

163 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 12.4 FraMeWork agreements Us Framework agreement Summary of Contribution and Purchase BBWP (US) LLC, a Delaware limited liability company ( Us sub ) and BBPOP Wind Equity LLC, a Delaware limited liability company ( BBWe ) have entered into a Capital Contribution Agreement, dated as of September 23, 2005 (the 05 agreement ) for the contribution of certain membership interests (the 05 Membership interests ) of BBPOP Wind Investment 3 LLC ( Wind investment 3 ). Pursuant to the 05 Agreement, on the initial closing date, (i) BBWE will contribute 62.5% of the 05 Membership Interests to Babcock & Brown Wind Partners-U.S. LLC ( BBWpUs ), (ii) US SUB will contribute to BBWPUS, cash in an amount equal to the computed value (as defined in the 05 Agreement) of each completed wind project in which Wind Investment 3 has an indirect ownership (the Cash Contribution amount ), (iii) BBWPUS will, out of the proceeds of the Cash Contribution Amount, contribute such amount to Wind Investment 3 so that Wind Investment 3 can pay off certain of its existing debt, and (iv) the balance of the Cash Contribution Amount shall be distributed by BBWPUS to BBWE. Following the consummation of all the transaction described above, BBWPUS will hold 62.5% of the membership interests in Wind Investment 3. Subject to the terms and conditions of the 05 Agreement there may be subsequent closings if some of the wind projects are not completed by March 31, In the case of a subsequent closing, (i) BBWE shall have, prior to the initial closing, caused Wind Investment 3 to transfer its membership interest in such subsidiary that holds any uncompleted wind project to BBWE or to another entity wholly-owned by BBWE, (ii) BBWE will contribute (x) 62.5% of its membership interest in such subsidiary that, directly or indirectly, holds the interest in the applicable completed wind project to BBWPUS and (y) the remaining 37.5% of its membership interest in such subsidiary directly to Wind Investment 3, (iii) BBWP agrees to contribute cash in an amount equal to the Cash Contribution Amount for such completed wind project to BBWPUS, (iv) BBWPUS shall then contribute the membership interest in such subsidiary to Wind Investment 3, and (v) BBWPUS shall distribute the Cash Contribution Amount to BBWE. A subsequent closing must occur prior to June 30, In addition, BBWP and BBWE will negotiate in good faith an additional capital contribution to BBWPUS of the remainder of the Membership Interests, an additional capital contribution by BBWP (the Additional Contribution Amount ) and an additional distribution of such amounts to BBWE, provided, that if the parties agree on the terms of such additional contributions and distributions (i) BBWE will contribute the remaining thirty seven and five tenths percent (37.5%) of the Membership Interests (the Additional Membership Interests ) to BBWPUS, (ii) BBWP will contribute cash to BBWPUS in an amount to be agreed between the parties, and (iii) a certain amount of that cash will be distributed by BBWPUS to BBWE. If at any time or from time to time prior to June 30, 2007, BBWP agrees to make an such additional capital contribution that is at least equal to 60% of the Cash Contribution Amount, then BBWE must contribute the Additional Membership Interests unless it has a good faith belief that the proposed additional cash contribution is less than the market price for 30% of the Membership Interest provided, that nothing in the Agreement requires BBPWE to contribute the Additional Membership Interests prior to December 31, 2006 whether or not such good faith belief exists prior to such date. Notwithstanding the foregoing, BBPWE may sell the Additional Membership Interests to a third party at any time after the date of the Agreement; provided, (i) BBPWE shall have given BBWP 30 days prior written notice of its intent to sell the Additional Membership Interest (such notice shall contain the material terms of such sale including the amount of consideration to be paid), and (ii) either (A) no proposal has been made by BBWP within 10 days of receiving such notice or (B) if BBWP has submitted a proposal, BBPWE sells the Additional Membership Interest at a higher price than the price contained in any BBWP proposal. The cash contribution amounts shall be payable to such accounts in the US as BBWPUS designates, including to the accounts of the lenders of Wind Investment 3, such that Wind Investment 3 shall have discharged all of the debt owed by it to those lenders and the lenders have released their security, if any. Closing Conditions Certain conditions need to be satisfied at completion of the contribution which are fairly typical for a transaction of this kind. Conditions to closing include, among others: Obtaining Federal Energy Regulatory Commission ( FERC ) approval Expiration of Hart-Scott Rodino ( HSR ) waiting period with no action taken by Federal Trade Commission ( FTC ) or the Department of Justice ( DJ ) 161

164 12 MATERIAL CONTRACTS Accuracy of warranties when repeated Completion of due diligence on the Wind Projects (including receipt by BBWP of all Material Contracts concerning the Wind Projects and updated disclosure schedules) Compliance with certain obligations, including simultaneous repayment of outstanding indebtedness and release of liens Delivery of counsels opinions, certificates, reports and other documents The contribution by BBWP to BBWPUS of 62.5% of the membership interests of Wind Investment 3 and BBIM being its managing member No material adverse change in the nature of BBWPUS and its subsidiaries The Offer Termination The 05 Agreement may be terminated by either party if FERC approval is not obtained, if the HSR waiting period fails to expire due to FTC or DJ prohibiting the transaction or if the transaction has not closed on a specified date and by either party for a material breach of warranty or covenant which is not remedied. Furthermore, US SUB and BBWE may, under certain specified circumstances, each elect to terminate the Agreement if an independent valuation of the value of the completed wind projects is not consistent with the original calculated values. US SUB has the right to terminate the acquisition of an interest in a particular wind project if there has been (i) a material adverse change with respect to such wind project, or (ii) a breach by BBWE of any material representation, warranty or covenant made in the 05 Agreement with respect to such wind project. Representations, Warranties and Covenants The 05 Agreement contains representations and warranties by BBWE and US SUB which are fairly typical for a transaction of this kind and limitations are imposed on BBWE with regard to the pre-completion actions it can take with respect to BBWPUS and its subsidiaries. BBWE s representations and warranties relating to specific wind projects are generally qualified by BBWE s knowledge these include representations and warranties relating to BBWE s real property assets, compliance with laws, permits, environmental hazards and compliance, insurance and taxes. Prior to closing, BBWE covenants that it will conduct its business in the ordinary course substantially consistent with past practices and notify BBWE of any matter that could have a material impact on BBWE s business. BBWE further covenants with respect to the wind projects that it will not take certain major actions without the consent of BBWP, such as granting liens, make acquisitions of assets, making capital expenditures, entering into new material contracts (each with a minimum value threshold of US$100,000 for contracts and US$50,000 in all other cases). Indemnification The 05 Agreement contains an indemnity for loss from BBWE in respect of breaches of warranty or covenants unless they are fairly disclosed against or within the beneficiary s actual knowledge. Certain representations made by BBWE are excluded from BBWE s indemnity, including in relation to wind projects excluded from the acquisition at US SUB s election. BBWE has no indemnification obligation to the extent that the purchase price is adjusted to account for a claim or the claim is recovered from a third party. BBWE s maximum liability for claims in relation to a breach of its representations and warranties regarding organisation and status, power, authority and enforceability, no violation or conflicts, ownership of the membership interests to be transferred, beneficial ownership of subsidiaries and wind projects and investments by its subsidiaries is limited to (a) the Cash Contribution Amount or (b) if for transactions involving additional contribution closings, the Additional Contribution Amount. BBWE s maximum liability for all other claims (other than claims based on fraud, willful misconduct or intentional misrepresentation) is limited to 33% of (a) the Cash Contribution Amount or (b) if for transactions involving additional contribution closings, 33% of the Additional Contribution Amount. Liability for breach of warranty is subject to a de minimis threshold which must first be reached in terms of the monetary value of a claim and an overall cap. A party s ability to claim in respect of breach of warranty is subject to a time bar on making claims. For most claims, the time bar is the greater of 1 year from the closing (or the closing of an additional contribution) or until the completion of the audit for the tax year ended December 31, Certain other claims have specific survival periods, including claims relating to taxes, the environment (which has a 3-year time bar) or claims based on fraud, misconduct or intentional misrepresentation. US SUB has an obligation, at BBWE s expense, to use commercially reasonable efforts to mitigate losses relating to all claims. 162

165 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Limitation on Purchaser s Liability US SUB s maximum liability exposure under the agreement other than for claims based on fraud, misconduct or intentional misrepresentation, is 10% of the Additional Contribution Amount for transactions regarding additional contributed membership interests (whether or not the closing occurs). The agreement is governed by the laws of the State of New York, USA spanish Framework agreement BBWPL has entered into a framework agreement dated 13 September 2005 with Babcock & Brown (Uk) Holdings Limited, a Uk subsidiary of Babcock & Brown ( B&B Uk ), pursuant to which BBWPL acquires certain rights and obligations in relation to the acquisition of wind farms in Spain which correspond to rights and obligations which B&B Uk has with Gamesa Energía SAU. As consideration, B&B Uk receives a fee from BBWPL each time BBWP purchases a wind farm pursuant to the framework agreement. The wind farms must satisfy certain criteria in order to fall within the scope of the framework agreement. The framework agreement contemplates that wind farms with installed capacity of up to 450MW in aggregate of power could be available under the framework agreement over the next three years. BBWPL and B&B Uk have agreed to co-ordinate the due diligence process in relation to any potential wind farms under the framework agreement. The framework agreement is governed by the law of New South Wales, Australia german Framework agreement BBWPL has entered into a framework agreement dated 13 September 2005 with, Babcock & Brown GmbH, a European subsidiary of Babcock & Brown ( B&B Germany ) pursuant to which BBWPL becomes the beneficiary of certain rights from, and undertakes certain obligations to, B&B Germany which correspond to rights and obligations which B&B Germany has with Renerco Renewable Energy Concepts AG ( Renerco ). As consideration, B&B Germany receives a fee from BBWPL under the agreement each time BBWPL purchases a wind farm pursuant to the framework agreement calculated by reference to the expected net energy output of the target wind farm. BBWPL also agrees to reimburse B&B Germany for costs incurred in enforcing rights under its agreement with Renerco. Renerco has agreed to grant a right of first refusal in relation to the acquisition of wind farms in Germany before the end of 2006 (and BBWPL becomes a beneficiary of this right by B&B Germany granting a back-to back right to BBWPL under the framework agreement). In exchange B&B Germany (with BBWPL being obliged towards B&B Germany) must give to Renerco a first right of refusal to provide management services in respect of those wind farms on arms length market terms (similar to the services provided by Renerco to the Niederrhein wind farm under the operating agreement (refer to Appendix 3, A3.4.4 for a summary of this contract)). Furthermore, BBWPL is under an obligation which corresponds to the arrangement between B&B Germany and Renerco to review in good faith on a case-by-case basis whether to offer a technical services mandate on competitive market terms to Renerco for all wind farm projects B&B Germany (and thus BBWPL) acquires from other parties situated in Germany, Italy or Austria. BBWPL and B&B Germany have agreed to co-ordinate the due diligence process in relation to any potential wind farms under the framework agreement. The framework agreement is governed by the law of New South Wales, Australia. 163

166 13 ADDitioNAl information 13.1 asic relief ASIC has granted or indicated its intention to grant modifications and exemptions from the application of the following provisions of the Corporations Act: A modification of sections 601FC(1)(c) and 601FD(1)(c) to permit BBWPS (as Responsible Entity) and its directors to have regard to the interests of Securityholders as a whole, rather than to members of BBWPT only A modification of Part 5C.7 of the Corporations Act to permit the Responsible Entity to give financial benefits out of BBWPT assets to BBWPL, BBWPB and certain subsidiaries without Securityholder approval as long as Units, BBWPL Shares and BBWPB Shares remain stapled A modification of section 1017E of the Corporations Act to permit BBWPT, BBWPL and BBWPB to use a single bank account for Application Money received in respect of Applications for Stapled Securities under this document A modification of section 601GA(1)(a) of the Corporations Act to facilitate the issue of Stapled Securities at market price where that price is allocated among the components of the Stapled Securities in accordance with the Trust Constitution asx WaiVers BBWP has sought in principle approval of ASX to the grant of waivers from, and confirmations in relation to, the following ASX Listing Rules: Listing Rule 1.1: A confirmation that the structure and operations of the stapled entities are appropriate for listing, and that the Constitutions are in acceptable form, on the following conditions: the Management Services Agreements contain the power to appoint a separate manager of specific assets in the limited circumstances described in the summary in Section a summary of the US pre-emptive rights and change of control provisions described in Sections and be disclosed in the Offer Document, in pre-quotation disclosure and be updated in each Annual Report of BBWP a summary of the US Guarantees described in Sections and be disclosed in the Offer Document Listing Rule 1.1, Condition 7: A waiver to the extent necessary from the requirement that each parcel of securities has a value of at least $2,000 on the condition that each parcel of Stapled Securities has a value of at least $2,000 Listing Rule 1.1, Condition 8: A waiver so that BBWPT, BBWPL and BBWPB do not have to comply with the asset test separately as long as together the BBWP entities comply with the test Listing 1.3.5: A confirmation that certain financial information in relation to BBWP will be sufficient for the purposes of admission to the Official List Listing Rule 2.1, Condition 1: A confirmation that the terms of the Stapled Securities are appropriate and equitable and comply with Chapter 6 of the ASX Listing Rules Listing Rule 2.1, Condition 2: A waiver to the extent necessary from the requirement that the issue price of a Unit, BBWPL Share or BBWPB Share must exceed $0.20 in cash on the condition that the issue price of a Stapled Security exceeds that amount Listing Rule 3.1: A confirmation to the extent necessary that disclosure by one BBWP entity in respect of one component of a Stapled Security satisfies the disclosure requirements of the other BBWP entities in respect of the same matter Listing Rule 6.24: A waiver to the extent necessary from the requirement to announce the amount of a Distribution in respect of a Stapled Security on the same date that BBWP announces the record date on the basis that ASX is advised of an estimated Distribution in respect of a Stapled Security on the same day that the record date is announced and ASX is advised of the actual Distribution as soon as it becomes known Listing Rules 7.1 and 10.11: A waiver to the extent necessary to permit BBWP to issue Stapled Securities to BBIM or its related bodies corporate in lieu of up to 60% of the Incentive Fee periodically on satisfaction of performance benchmarks without obtaining Securityholder approval 164

167 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Listing Rule 8.10: A waiver to the extent necessary to permit each BBWP entity to refuse to register a transfer of Units, BBWPL Shares or BBWPB Shares (as the case may be) if such transfer is not accompanied by a corresponding transfer of Units, BBWPL Shares or BBWPB Shares (as the case may be) Listing Rule 9.1: Confirmation that ASX does not consider that Stapled Securities issued to Babcock & Brown, BBI, other Founding Investors, vendors of Wind Farm Assets, management of BBWP and promoters should be regarded as restricted securities for the purposes of the ASX Listing Rules or that relevant exceptions apply to this requirement Listing Rule 10.1: Certain confirmations and waivers to permit the transfer of substantial assets between each BBWP entity without the need for Securityholder approval, subject to certain conditions being satisfied (including that all the Units, BBWPL Shares and BBWPB Shares are stapled together and BBWP does not issue any securities which are not Stapled Securities) Listing Rules 10.1 and 11.4: Confirmations that Babcock & Brown may dispose of its interests or part of its interests in the US Assets, Lake Bonney Stage 2, the Alinta Wind Farm and the Framework Agreements to BBWP without the need for shareholder approval Listing Rules 10.1: Confirmations that BBWP may acquire the interests in any of the US Assets, Lake Bonney Stage 2 and assets acquired under the Framework Agreements without Securityholder approval Listing Rule 10.11: Confirmations and to the extent necessary, waivers to permit Directors and directors of related parties of each BBWP entity to apply for and be issued Stapled Securities under the Offer 13.3 related party transactions Certain Directors of Babcock & Brown are Securityholders, and accordingly may receive benefits as a result of transactions entered into by BBWP. BBWP has entered into the following arrangements with parties in which Babcock & Brown has a financial interest which could potentially give rise to financial benefits to related parties: separate Management Services Agreements between BBIM, a subsidiary of Babcock & Brown, and each of BBWPL, BBWPT and BBWPB (see Section for a summary of the Management Services Agreements ) the purchase from a subsidiary of Babcock & Brown of 8% of the Alinta Wind Farm by BBWP (see Sections 5.2 and for a description of the Walkaway Acquisition Agreement and the acquisition) the purchase from a subsidiary of Babcock & Brown of 50% of Lake Bonney Stage 2 by BBWP (see Section 5.2 and for a description of the LB2 Acquisition Agreement and the acquisition) the termination of an existing financial advisory mandate between BBAH, a subsidiary of Babcock & Brown, and BBWPL and BBWPT the entry into of new financial advisory mandates between BBA and BBWPL, BBWPT and BBWPB relating to replacement of the previous financial mandate (see paragraph above) and matters relating to the proposed Offer (see Section for a description of the arrangement) the GST facilitation agreement between BBA and BBWPL, BBWPT and BBWPB the termination of the existing co-ordination deed between BBAH and BBWPL and BBWPT the acquisition by a subsidiary of BBWPL of 80% of the membership interest in BBWPUS from BBWE (an entity in which Babcock & Brown has a financial interest). BBWE will continue to own 20% of the membership interest and will have pre-emptive rights over BBWPL s interest in BBWPUS and BBIM (a subsidiary of Babcock & Brown) will be the managing member of BBWPUS. BBWPUS will own entities in which Babcock & Brown has a financial interest and entities which hold existing interests in five US wind farms (see Sections 5.2 and for a description of the US Acquisition Agreement and the US Acquisition). a guarantee from BBWPT and BBWPL in favour of each of Babcock & Brown International Pty Ltd ( BBipl ) and Babcock & Brown LP ( BBlp ) in respect of BBIPL s and BBPL s obligations in relation to shareholders agreements for the five US wind farms (see Section for a description of the US Guarantees) 165

168 13 ADDITIONAL INFORMATION BBWP(US) LLC entering into an agreement with BBWE to acquire membership interests in 4 further US wind farms at a future point in time for a specified purchase price (see Section for a description of the US Framework Agreement) BBWP entering into an agreement with Babcock & Brown (Uk) Holdings Limited ( BBUkH ), an entity in which Babcock & Brown has a financial interest, to acquire BBUkH s interest in wind farms to be delivered by Gamesa under a pre-existing agreement between Gamesa and BBUkH (see Section for a description of the Spanish Framework Agreement) BBWP entering into an agreement with Babcock & Brown GmBH ( B&B germany ), an entity in which Babcock & Brown has a financial interest, to acquire rights and obligations from B&B Germany s interest in wind farms which may be offered to B&B Germany or its nominee by Renerco Renewable Energy Concepts AG ( renerco ) under a pre-existing memorandum of understanding between Renerco and B&B Germany (see Section for a description of the German Framework Agreement) as part of the underwriting arrangements, BBWP has entered into underwriting arrangements with BBAH Babcock & Brown has entered into a currency hedging agreement for an amount of US$65,650,000. The full benefit and burden of the hedging agreement has been passed on from Babcock & Brown to BBWPL and Babcock & Brown does not receive any fees in respect of this arrangement (see Section ) CoMplaint resolution procedure The Trust Constitution contains provisions which govern the procedures for dealing with complaints relating to BBWPT by Securityholders, as holders of a Unit in BBWPT. The Responsible Entity has procedures in place to properly consider and deal with any complaints received from Securityholders within the timeframes set out in the Trust Constitution. If you wish to register a complaint, contact the Compliance Manager for the Responsible Entity at the contact details shown in the Corporate Directory. The Responsible Entity will acknowledge your complaint, investigate it and decide what action needs to be taken. The Responsible Entity will notify you of its decision, together with any remedies that are available or other avenues of appeal against the decision. If you are not satisfied that your complaint has been properly handled by the Responsible Entity, complaints about your investment can be made to: Financial Industry Complaints Service Limited PO Box 579 Collins Street West Melbourne Victoria 8007 Australia Telephone number: disclosing entities Each of BBWPL, BBWPB and BBWPT will be disclosing entities for the purposes of the Corporations Act and as such will be subject to regular reporting and disclosure obligations under the Corporations Act and, after admission to the Official List, the ASX Listing Rules. These obligations require the BBWP entities to notify ASX of information about specified events and matters concerning BBWP as they arise for the purposes of ASX making that information available to the share market operated by ASX. In particular BBWP is obliged under the ASX Listing Rules (subject to limited exceptions) to notify ASX of information concerning BBWP of which BBWP is or becomes aware which a reasonable person would expect to have a material effect on the price or value of Stapled Securities. Further BBWP is required to prepare both yearly and half yearly financial statements, a report on operations and undertakings of BBWP during the relevant accounting period and an audit or review of that report. 166

169 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Copies of documents lodged with ASIC in relation to BBWP may be obtained from, or inspected at, an ASIC office. BBWP will also provide a copy of any of the following documents free of charge to any person who requests a copy during the Offer Period: Each of the Constitutions The Compliance Plan The Stapling Deed Copies of these documents do not form part of this Offer Document BerMUda law issues incorporation: BBWPB is incorporated in Bermuda; and takeovers: unlike BBWPL and BBWPT, BBWPB is not subject to the sections in Chapter 6 of the Corporations Act dealing with the acquisition of shares (including substantial holdings and takeovers). Bermuda company law does not have a takeover code which effectively means that a takeover of BBWP will be regulated under Australian takeover law. Section 103 of the Bermuda Companies Act provides that where an offer is made for shares of a company and, within four months of the offer the holders of not less than 90% of the shares which are the subject of such offer accept the offeror may by notice require the non-tendering shareholders to transfer their shares on the terms of the offer. Dissenting shareholders may apply to the court within one month of the notice, objecting to the transfer. The test is one of fairness to the body of the shareholders and not to individuals, and the burden is on the dissentient shareholder to prove unfairness, not merely that the scheme is open to criticism. taxation exemption: At the date of this Offer Document, BBWPB is not subject to any Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax. BBWPB has applied for and expects to obtain an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act, 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, be applicable to BBWPB or to any of its operations or to its shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by BBWPB in respect of real property owned or leased by BBWPB in Bermuda. regulation in Bermuda: BBWPB is classified with the BMA as a Bermuda Standard Scheme under the Bermuda Monetary Authority (Collective Investment Scheme Classification) Regulations, 1998, as amended (the Bermuda Scheme Regulations ). As a regulated mutual fund, BBWPB is subject to supervision of the BMA who may, at any time, instruct BBWPB to have its accounts audited and to submit them to the BMA within such time as the BMA specifies. In addition, the BMA may ask BBWPB and/or any of its Directors to give the BMA such information or such explanation in respect of BBWPB as the BMA may reasonably require to enable it to carry out is duties under the Bermuda Scheme Regulations. BBWPB and/or it Directors must give the BMA access to or provide at any reasonable time all records relating to BBWPB and the BMA may copy or take an extract of any record to which it is given access. The BMA may take certain actions if it is satisfied that a regulated mutual fund is or is likely to become unable to meet its obligations as they fall due or is carrying on business or is winding up its business voluntarily in a manner that is prejudicial to the shareholders or its creditors. Also as a Bermuda Standard Scheme, BBWP will appoint a custodian of its assets interests of directors interests of directors Other than as set out below or elsewhere in this Offer Document, no Director has, or had within 2 years before lodgment of this Offer Document with ASIC, any interest in: the promotion or formation of BBWP; property acquired or proposed to be acquired by BBWP in connection with its promotion or formation or the Offer; the Offer, 167

170 13 ADDITIONAL INFORMATION and no amounts have been paid or agreed to be paid and no benefits have been given or agreed to be given to any Director: to induce him or her to become, or to qualify him or her as, a Director; or for services rendered by him or her in connection with the formation or promotion of BBWP or the Offer. Directors are not required under the Constitutions to hold any Stapled Securities. As at the date of this Offer Document, the following Directors hold Stapled Securities, either directly or indirectly: Director s holding Name of Director or Alternate Director Number of Stapled Securities Peter Hofbauer 959,577 Warren Murphy 959,577 Directors of BBWP, the Manager, Babcock & Brown and Babcock & Brown Infrastructure may apply for Stapled Securities under the Offer and a number of these persons or their associated entities have indicated an intention to do so. deeds of access, indemnity and insurance Each of BBWPL, BBWPS and BBWPB will enter into a deed of access, indemnity and insurance in favour of each of its Directors. The deed will give each of its Directors rights to access Board papers, the indemnity will be subject to restrictions set out in the relevant Constitution and relevant laws. The deed will require the relevant BBWP entity to maintain insurance cover for its Directors other interests Prior to the Offer, Babcock & Brown held interests in approximately 13% of the Stapled Securities and expects (subject to any additional holding which may arise by virtue of the underwriting commitments under the Underwriting Agreement) to subscribe for additional Stapled Securities pursuant to the Offer to bring its holding to approximately 15% of BBWP at the time of listing. Directors of Babcock & Brown and their families currently hold approximately 4.7% of BBWP and may subscribe for further Stapled Securities under the Offer. Members of the Babcock & Brown Group will earn fees in connection with the Offer and BBWP as described in Section 8. Babcock & Brown Infrastructure currently holds interests of approximately 38.5% of BBWP and it is the current intention of BBI to continue to hold a significant stake in BBWP following the Offer by retaining its existing Stapled Securities (which represent a 17.5% holding on the Allotment Date based on the Offer) interests of experts and advisers Except as set out in this Offer Document, no person named in the Offer Document as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of the Offer Document, or a promoter of BBWP or a stockbroker to the Offer: Has any interest, or has had any interest during the last two years, in the formation or promotion of BBWP, or in property acquired or proposed to be acquired by BBWP in connection with the formation or promotion of BBWP or the Offer; Has been paid any amount or agreed to be paid and no benefit has been given or agreed to be given to any such person in connection with services provided by the person in connection with the formation or promotion of BBWP. lawyers Mallesons Stephen Jaques has acted as legal advisers to BBWP in relation to the preparation of the Offer Document, advising on Australian legal matters, listing of the Stapled Securities on ASX and certain Australian due diligence enquiries and negotiation of certain Australian acquisition agreements, procurement agreements, framework agreements and intra-group loans and ancillary documents. In addition, Mallesons Stephen Jaques has acted as adviser to BBWP as to matters relating to Australian stamp duty. BBWP estimates that it will pay approximately 168

171 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT $1.46 million (excluding disbursements and GST) for services related to the Offer and $240,000 for services related to the Australian Acquisitions. Further fees may be paid to Mallesons Stephen Jaques in relation to other matters for BBWP in accordance with normal time based charges. Financial adviser Babcock & Brown Group has provided financial advisory services to BBWP in respect of the Offer and pre-offer related transactions. BBWP estimates that it will pay approximately $16.6 million for these services. Peter Hofbauer and Warren Murphy who are Directors of BBWPL, BBWPB and/or BBWPS, are executives of, and shareholders in, Babcock & Brown Group and therefore may have an indirect interest in fees payable to Babcock & Brown Group by BBWP. Foundation offer Underwriter Babcock & Brown Asset Holdings Pty Ltd has agreed to act as Foundation Offer Underwriter for the Foundation Offer. BBWP has paid or agreed to pay approximately $4.6 million for these services. joint Bookrunners Each of JPMorgan and UBS has agreed to act as a Joint Bookrunner to the Offer. BBWP estimates that it will pay approximately $6.0 million for these services (approximately $6.1 million in the event of the Oversubscribed Offer). Co-Managers Each of Bell Potter Securities Limited, Deutsche Bank Securities Australia Limited, Ord Minnett Limited, Tricom Equities Limited, UBS Private Clients Australia and Wilson HTM Corporate Finance Limited has agreed to act as a Co-Manager to the Offer. The costs of these services will be met by the Joint Bookrunners. independent accountant Ernst & Young has acted as Independent Accountant and has prepared the Independent Accountant s Historical Financial Information Report. Ernst & Young Transaction Advisory Services Limited has acted as Independent Accountant to the Offer and has prepared an Independent Accountant s Forecast Financial Information Report for inclusion in this Offer Document. BBWP estimates that it will pay approximately $325,000 for these services. taxation adviser Ernst & Young has acted as taxation adviser to BBWP in relation to the Offer and has prepared the Taxation Report for investors for inclusion in this Offer Document. BBWP estimates that it will pay approximately $435,000 for these services. auditor Ernst & Young has acted as the auditor of BBWP in relation to the financial statements for the year ending 30 June These fees are typically GST exclusive Consents Each of the parties referred to as consenting parties who are named below: a) has not made any statement in this Offer Document or any statement on which a statement made in this Offer Document is said to be based, other than a statement included with the consent of the consenting party as specified in b) or d) below b) to the maximum extent permitted by law, expressly disclaims and takes no responsibility for any statements in or omissions from this Offer Document, other than the reference to its name and/or a statement or report included in this Offer Document with the consent of that consenting party c) has given and has not, before lodgment of this Offer Document with ASIC and the Registrar of Companies of Bermuda withdrawn its consent to be named in this Offer Document in the form and context in which it is named d) in the case of each of the Independent Accountant, the Taxation Adviser and BTM Consult has given and has not, before lodgment of this Offer Document with ASIC, withdrawn its consent to the inclusion of a statement or report by that person in this Offer Document in the form and context in which it appears. 169

172 13 ADDITIONAL INFORMATION Role Joint Bookrunners Institutional Offer and Broker Firm Offer Underwriters Foundation Offer Underwriter Financial Adviser Co-Managers Lawyers Independent Accountant Taxation Adviser Auditor Registry N/A N/A N/A Consenting Party JPMorgan and UBS JPMorgan and UBS Babcock & Brown Asset Holdings Pty Ltd Babcock & Brown Australia Pty Ltd Bell Potter Securities Limited Deutsche Bank Securities Australia Limited Ord Minnett Limited Tricom Equities Limited UBS Private Clients Australia Wilson HTM Corporate Finance Limited Mallesons Stephen Jaques Ernst & Young Transaction Advisory Services Limited Ernst & Young Ernst & Young PricewaterhouseCoopers ASX Perpetual Registrars Limited Babcock & Brown Limited Babcock & Brown Infrastructure BTM Consult expenses of the offer The total estimated costs of the Offer, including advisory, legal, accounting, tax, listing and administrative fees, printing, advertising and other expenses relating to the Offer, including underwriting expenses, together with the pre-offer related transactions are currently estimated to be approximately A$33 million. BBWP is bearing all expenses of the Offer and pre-offer related transactions directors Consents to lodgment Each of the Directors of BBWPL, BBWPB and BBWPS as Responsible Entity has given, and not withdrawn as at the date of the Offer Document, their consent to the lodgment of this Offer Document with ASIC and the Registrar of Companies of Bermuda. 170

173 14 glossary $ or a$ Australian dollars accounting standards acquisitions afsl a-gaap Generally accepted accounting standards in the relevant jurisdiction The US Acquisition, the Olivo Acquisition and the Australian Acquisitions An Australian financial services licence granted by ASIC under the Corporations Act Generally accepted accounting standards in Australia agl electricity AGL Electricity Limited (ABN ) agm a-ifrs alinta Wind Farm Annual General Meeting Australian equivalent to International Financial Reporting Standards The 89.1 MW wind farm located south east of Geraldton, Western Australia alinta gas Alinta Gas Networks Pty Ltd (ABN ) alinta sales Alinta Sales Pty Ltd (ABN ) allotment allotment date applicant application application Form application Money asic The allocation of Stapled Securities under the Offer following acceptance of an Application The date of allotment of Stapled Securities pursuant to this Offer Document which is anticipated to occur on Thursday 3 November 2005 unless otherwise determined by BBWP A person who has made an Application under the Offer An application to subscribe for or purchase Stapled Securities under this Offer Document The application form attached to or accompanying this Offer Document The money received from Applicants in respect of their Applications under the Offer Australian Securities and Investments Commission astc ASX Settlement and Transfer Corporation Pty Ltd (ABN ) astc settlement rules The operating rules of ASTC asx Australian Stock Exchange Limited (ABN ) asx guidelines asx listing rules australian acquisitions australian assets B&B germany B&B Uk B&B Windpower Babcock & Brown Babcock & Brown group The Principles of Good Corporate Governance and Best Practice Recommendations of the ASX Corporate Governance Council The listing rules of the ASX The transactions contemplated by the LB2 Acquisition Agreement and the Walkaway Acquisition Agreement BBWP s investments in wind farms located in Australia Babcock & Brown GmbH, a subsidiary of Babcock & Brown based in Munich, Germany Babcock & Brown (Uk) Holdings Limited, a subsidiary of Babcock & Brown based in London, Uk Babcock & Brown Windpower Pty Ltd (ABN ), a wholly owned subsidiary of Babcock & Brown Babcock & Brown Limited (ABN ) and, where the context permits, includes its subsidiaries from time to time Babcock & Brown and its subsidiaries from time to time Babcock & Brown infrastructure A double stapled infrastructure investment fund listed on the ASX (ASX:BBI) (formerly known as Prime Infrastructure) Base Fee The base fee based on Net Investment Value as summarised in Section

174 14 GLOSSARY BBa Babcock & Brown Australia Pty Ltd (ABN ) BBaH Babcock & Brown Asset Holdings Pty Ltd (ABN ) (AFSL ) BBai Babcock & Brown Australia Infrastructure Pty Ltd (ACN ) BBi Babcock & Brown Infrastructure (ASX code: BBI) BBiM Babcock & Brown Infrastructure Management Pty Ltd (ACN ) BBipl Babcock & Brown International Pty Ltd (ABN ) BBpop BBWe BBWp Babcock & Brown Power Operating Partners LLC, an US entity in the Babcock & Brown Group BBPOP Wind Equity LLC, a US subsidiary of Babcock & Brown Babcock & Brown Wind Partners, comprising BBWPL, BBWPB and BBWPS as responsible entity of BBWPT and, where the context permits, includes their subsidiaries from time to time BBWpB Babcock & Brown Wind Partners (Bermuda) Limited ARBN BBWpB Constitution The constitution of BBWPB approved by the company on 14 September 2005 (as amended from time to time) BBWpB Management services agreement BBWpB share BBWpl BBWpl Constitution The agreement so entitled between BBIM and BBWPB as amended An ordinary share issued by BBWPB Babcock & Brown Wind Partners Pty Ltd (ABN ) which will convert to a public company as of 30 September 2005 and be known as Babcock & Brown Wind Partners Limited The constitution of BBWPL as amended from time to time BBWpl Management The agreement so entitled between BBIM and BBWPL as amended services agreement BBWpl share An ordinary share issued by BBWPL BBWp portfolio The portfolio of assets and investments of BBWP from time to time BBWps Babcock & Brown Wind Partners Services Limited (ACN ) (AFSL ) as responsible entity of BBWPT BBWps Management The agreement so entitled between BBIM and BBWPS as amended services agreement BBWpt Babcock & Brown Wind Partners Trust ARSN (ARSN ) BBWpUs Babcock & Brown Wind Partners-US LLC BBWpUs llc agreement The amended and restated limited liability company agreement dated on or around 16 September 2005 between BBPOP Wind Equity LLC, BBWP (US) LLC and BBIM BeW Bocholter Energie und Wasserversorgung GmbH Blue Canyon A wind farm located in Oklahoma in the US an interest in which is to be included in the Initial Portfolio upon completion of the US Acquisition Board Bop Brokers Broker Firm offer applicant The board of Directors of BBWPL, BBWPB or the Responsible Entity as the context requires Balance of plant Brokers who are offered a firm allocation under the Offer An applicant who has been offered an allocation of Stapled Securities by a Broker 172

175 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT Broker Firm offer BtM Consult BtM Consult report 2004 Cagr Caprock Caprock llc Carbon solutions The invitation under this Offer Document to Australian resident retail clients (who are not US Persons) of the Brokers who receive a firm allocation from the Joint Bookrunners (as described in Section 3) BTM Consult ApS, a Danish based consultancy firm specialising in renewable energy whose website can be found at The report prepared by BTM Consult titled International Wind Energy Development World Market Update 2004 Forecast dated March 2005 Compound annual growth rate A wind farm located in New Mexico in the US an interest in which is to be included in the Initial Portfolio upon completion of the US Acquisition Babcock & Brown Caprock I LLC, the owner of Caprock Four Australian proprietary companies, being Dungowan Investments Pty Ltd, Favonius Pty Ltd, Ventus Capital Pty Ltd and Fairday Holdings Pty Ltd, each in its capacity as trustee for a private trust CBa Commonwealth Bank of Australia (ABN ) CHess Class a Members Class a Membership interests Class B Members Class B Membership interests Co-Managers Combine Hills Compliance plan Constitution Corporate directory Corporations act Custodian Custodian agreement Clearing House Electronic Sub-Register System, operated by ASX Settlement and Transfer Corporation Proprietary Limited Holders of Class A interests in a Project LLC The interests held by Class A Members Holders of Class B interests in a Project LLC The interests held by Class B Members Bell Potter Securities Limited, Deutsche Bank Securities Australia Limited, Ord Minnett Limited, Tricom Equities Limited, UBS Private Clients Australia and Wilson HTM Corporate Finance Limited A wind farm located in Oregon in the US an interest in which is to be included in the Initial Portfolio upon completion of the US Acquisition The compliance plan for BBWPT, as required by the Corporations Act BBWPL Constitution or BBWPB Constitution or the Trust Constitution, as the context requires The directory set out on the inside back page of this Offer Document Corporations Act 2001 (Clth) BBAH The agreement pursuant to which the Responsible Entity has appointed BBAH to act as custodian of the assets of BBWPT Custodian Fee The fee payable to the Custodian under the Custodian Agreement. See Section 8.2 debt Facility directors directors Forecasts distributions ebit ebitda The approximately euro 30,000,000 multi-option secured debt facility of BBWPL arranged by BOS International (Australia) Limited (ABN ) dated 23 September 2005 The directors of BBWPL, BBWPB and/or BBWPS as the context requires A-IFRS forecast summaries of financial performance and cash flows for the years ending 30 June 2006 and 2007 Distributions of cash made by BBWP to Securityholders in respect of their Stapled Securities Earnings before interest and taxes Earnings before interest, taxes, depreciation and amortisation 173

176 14 GLOSSARY eeg German act of 2004 granting priority to renewable energy resources electranet ElectraNet Pty Ltd (ABN ) eligible retail investors escosa eu eu-15 eu-25 euribor euro or 9 european assets ev exclusive Financial advisory agreement Financial adviser Financial year Fiscal administrator An Australian resident retail client (who is not a US Person) of a Broker Essential Services Commission of South Australia European Union European Union comprising 15 member countries, prior to the accession of 10 countries in 2004 European Union comprising 25 member countries, after the accession of 10 countries in 2004 The Euro Inter-bank Offered rate Euro, the currency of the European Monetary Union BBWP s investments in wind farm assets located in Europe Enterprise value defined as market value of equity plus forecast net debt The agreement pursuant to which BBA is appointed exclusive financial adviser to BBWP BBA A period of 12 months starting on 1 July and ending on 30 June in the next calendar year A person appointed by a Project LLC to be responsible for financial reporting. Forecast period The period between the Allotment Date and 30 June 2007 Founding investor Foundation offer Foundation offer applicant Foundation offer instructions Foundation offer Underwriter Framework agreements Framework assets Fy gamesa general electric or ge general electric Wind or ge Wind german Framework assets An initial investor in BBWP either at the time of its establishment or subsequently but before the date of this Offer Document but not a person who became an investor pursuant to the LB2 Acquisition Agreement or the Walkaway Acquisition Agreement The invitation under this Offer Document to investors selected by the Foundation Offer Underwriter in consultation with BBWP A person who has made an Application under the Foundation Offer Application procedures for investors under the Foundation Offer advised by the Foundation Offer Underwriter BBAH The US Framework Agreement, the Spanish Framework Agreement and the German Framework Agreement The US Framework Assets, the German Framework Assets and the Spanish Framework Assets Financial Year Gamesa Energía SAU, a company based in Spain General Electric Company, a New York corporation General Electric Wind Energy LLC Wind farm assets which may be acquired pursuant to the German Framework Agreement german Framework agreement The framework agreement between B&B Germany and BBWPL referred to in Section glossary This table of defined terms 174

177 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT greenfield gwh gwp Hin HsH ifrs incentive Fee independent accountant New or start up Giga Watt hour Global Wind Partners Holder Identification Number HSH Nordbank AG kiel, lender to Niederrhein Project Company International Financial Reporting Standards The fee based on an increase in value of the Stapled Securities in relation to a benchmark, as summarised in Section 8.2 Ernst & Young in relation to historical financial information and Ernst & Young Transaction Advisory Services Limited (ABN ) in relation to forecast financial information independent accountant s The report of the Independent Accountant on forecast pro forma financial Forecast Financial information of BBWP set out in Section 11.2 information report independent accountant s The report of the Independent Accountant on historical financial information of Historical Financial BBWP set out in Section 11.3 information report initial portfolio The Wind Farm Assets of BBWP upon completion of the Offer, the Olivo Acquisition and the US Acquisition installed Capacity (of a wind farm) institutional investor institutional offer institutional offer and Broker Firm offer Underwriter investment llc issuers joint Bookrunners The total capacity of all wind turbines on a wind farm An investor to whom offers or invitations of financial products can lawfully be made without the need for a lodged prospectus or product disclosure document The invitation to Institutional Investors under this Offer Document (as described in Section 3) JPMorgan and UBS One of the 5 limited liability companies which is the Class B Member through which BBWP will invest in each Project LLC upon completion of the US Acquisition The issuers of the Offer Document and the Stapled Securities to be issued pursuant to the Offer, namely BBWPL, BBWPB and BBWPS as Responsible Entity of BBWPT JPMorgan and UBS jpmorgan J.P. Morgan Australia Limited (ABN ) (AFSL ) kyoto protocol lake Bonney stage 1 lake Bonney stage 2 lb1 Lake Bonney Stage 1 lb2 Lake Bonney Stage 2 lb2 acquisition agreement The international agreement signed in kyoto Japan in 1997 which builds on the United Nations Framework Convention on Climate Change and sets targets and timetables for cutting the greenhouse gas emissions of industrialised countries who are signatory states. The wind farm which was the first stage of the Lake Bonney Wind Farm The wind farm comprising about 53 wind turbine generators and associated plant and equipment to be constructed on the land adjacent to LB1 and having a long term mean net annual electricity output of approximately 501 GWh p.a The share sale and project development agreement between, among others, the LB2 Vendors as sellers and BBWPL and BBWPS as buyers dated 14 September

178 14 GLOSSARY lb2 Co Lake Bonney Wind Power 2 Pty Ltd (ACN ) lb2 Consideration securities lb2 Financial Close lb2 purchase price lb2 purchasers lb2 Vendors 14,285,714 of BBWPL Shares and 14,285,714 Units Financial close and first funding of the proposed project debt financing for LB2 Co in relation to Lake Bonney Stage 2 A$20 million, being the purchase price payable under the LB2 Acquisition Agreement, as may be adjusted under that agreement BBWPL and BBWPT NPP II and BBAI lbwp Lake Bonney Wind Power Pty Ltd (ABN ) long term Mean energy production Manager Management services agreement MHi Minority interest Holders Mps Mret m/s MW MWh national electricity rules The best estimate of energy production in a year where there is a 50% probability that a given level of energy production will be exceeded in any year. This may also be referred to as P50. Expert advisers have given estimate for each of the wind farms in the Initial Portfolio on what the Long Term Mean Energy Production is for that wind farm. The manager of each of BBWPL, BBWPT and BBWPB pursuant to the Management Services Agreements, being BBIM Each of the BBWPL Management Services Agreement, the BBWPB Management Services Agreement and the BBWPS Management Services Agreement Mitsubishi Heavy Industries Ltd B&B Power 5 Pty Ltd, Carbon Solutions and NPP II, as vendors of their indirect interests in 25% of the capital in WWP Mitsubishi Power Systems Inc. Mandatory Renewable Energy Target established by the Federal Government of Australia metres per second Megawatt Megawatt hours the rules governing the operation of the national electricity market in Australia neg Micon australia NEG Micon Australia Pty Ltd (ABN ) nemmco net Capacity Factor net investment Value See Section 8.2 net long-term Mean energy production niederrhein or niederrhein Wind Farm niederrhein project Company nordex npat npp National Electricity Market Management Company A measure (usually a %) of the actual output of the wind turbine after taking into account losses (due to Wake Loss, electrical system inefficiencies, turbine availability etc). The Net Capacity Factor referred to in the tables in Section 6.5 is calculated using the Long Term Mean Energy Production The Long-term Mean Energy Production after taking into account losses (due to Wake Loss, electrical system inefficiencies, turbine availability etc) The wind farms located in Northrhine-Westphalia in Germany which are included in the Initial Portfolio Windpark Niederrhein GmbH & Co. kg Nordex AG, a German company listed on the Neuer Markt of the Frankfurt Stock Exchange, and members of its group including Nordex Energy GmbH Net profit after taxes National Power Partners LLC, based in California, USA 176

179 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT npp ii o&m oecd offer offer document offer period offer price official list official quotation offtake agreement olivento olivento Company or olivo Wind Farm olivo acquisition olivo portfolio olivo sale & purchase agreement omel oversubscribed offer oversubscription stapled securities ppa privacy act NPP Projects II LLC a subsidiary of NPP Operations and maintenance The Organisation for Economic Co-operation & Development The offer of 257,837,384 Stapled Securities under this Offer Document (this excludes any Oversubscription Stapled Securities) This combined product disclosure statement and prospectus The period starting on the date and time the Offer opens and ending on the date and time the Offer closes. See page 3 For the purposes of the Offer, the sum of $1.40 per Stapled Security The official list of ASX Quotation of Stapled Securities on the Official List An agreement to take or receive Olivento SL, a subsidiary of BBWPL incorporated in Spain A company which is a subsidiary of Olivento and which owns a wind farm in the Olivo Portfolio The Acquisition of the wind farms known as El Redondal, Serra da Loba and El Sardon The portfolio of 6 wind farms located throughout Spain which are included in the Initial Portfolio The share purchase agreement between Olivento and Gamesa as further described in Appendix 3, A3.3.1 Compania Operadora del Mercado Espanol de Electricidad, S.A., the electricity market operator in Spain The offer of the maximum number of Stapled Securities, assuming oversubscriptions of 25 million Stapled Securities, being 283 million made pursuant to the Offer Document The 25 million Stapled Securities that BBWP reserves the right to issue pursuant to the Oversubscribed Offer Power Purchase Agreement Privacy Act 1988 (Clth) probability of exceedence (pxx) The probability of a level of electricity output being exceeded xx% of the time in any year (as further explained in Section 6.4) pro Forma directors Forecasts project administrator project llc A-IFRS pro forma forecast summaries of financial performance and cash flows for the year ending 30 June 2006 which reflect the financial impact of 12 months of operations for the Initial Portfolio and the full year impact of corporate overheads, including the Base Fee payable to the Manager (as further explained in Section 9.9) A person appointed by a Project LLC to be responsible for managing its day-today activities One of 5 limited liability companies which owns a wind farm in which BBWP will acquire indirect Class B Member interests pursuant to the US Acquisition 177

180 14 GLOSSARY project llc agreement ptc reallocation date rec registered scheme A limited liability company agreement between the members of a Project LLC Production Tax Credit, a renewable energy credit in the US The date on which tax benefits and cash distributions are shared between the Class A Members and the Class B Members, being a date which occurs when the Class A Members target return has been achieved, as further described in a Project LLC Agreement as the flip date Renewable energy certificate A trust registered with ASIC as a management investment scheme in accordance with Chapter 5C of the Corporations Act registry ASX Perpetual Registrars Limited (ABN ) regulation s renerco responsible entity Regulation S of the US Securities Act Renerco Renewable Energy Concepts AG, a German company The responsible entity of BBWPT, being BBWPS rpv Renewable Power Ventures Pty Ltd (ABN ) rwe section securityholder settlement shortfall application date spanish Framework assets RWE Rhein-Rhur AG A section of this Offer Document The registered holder of a Stapled Security Settlement of the Stapled Securities under the Offer The date on which the Underwriters lodge or cause to be lodged applications for shortfall securities under the Underwriting Agreement, which is expected to be no later than 3 business days after the Closing Date Wind farm assets which may be acquired pursuant to the Spanish Framework Agreement spanish Framework agreement The framework agreement between B&B Uk and BBWPL referred to in Section special regime srn stapled security stapling deed successful applicant sweetwater 1 sweetwater 2 taxation adviser The Spanish regulatory regime created through a number of Royal Decrees places renewable energy producers under a Special Regime. Shareholder reference number One unit in BBWPT, one ordinary share in BBWPL and one ordinary share in BBWPB, stapled together such that the unit and those shares cannot be traded or dealt with separately The stapling deed entered into by the Responsible Entity, BBWPB and BBWPL described in Section An Applicant whose Application has been accepted by BBWP The 37.5MW first stage of a wind farm located in Texas in the US an interest in which is to be included in the Initial Portfolio as part of the US Acquisition The 91.5 MW second stage of a wind farm located in Texas in the US an interest in which is to be included in the Initial Portfolio as part of the US Acquisition Ernst & Young taxation report The report prepared by the Taxation Adviser set out in Section 11.3 trust Constitution The trust deed for BBWPT entered into by BBAH as initial trustee on 16 June 2003, as amended from time to time turbine availability Warranty A warranty given by the manufacturer of a wind turbine regarding the amount of time that the wind turbine is actually functional, not out of order or being serviced. 178

181 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT UBs UBS AG, Australia Branch (ABN ) (AFSL ) Underwriters Underwriting agreement Unit Unitholder Us$ Us, Usa or United states Us acquisition Us acquisition agreement Us assets Us Framework assets Us Framework agreement The Institutional Offer and the Broker Firm Offer Underwriters and the Foundation Offer Underwriter The agreement between BBWP and the Underwriters, details of which are set out in Section An ordinary unit in BBWPT The registered holder of a Unit United States dollars United States of America The acquisition of interests in the US Assets pursuant to the US Acquisition Agreement The membership interest purchase and sale agreement dated as of 22 September 2005 between the US Vendor as seller and BBWP (US) LLC as buyer in relation to the purchase of an 80% membership interest in BBWPUS Sweetwater 1, Sweetwater 2, Caprock, Blue Canyon and Combine Hills Wind farm assets which may be acquired pursuant to the US Framework Agreement The framework agreement between BBPOP Wind Equity LLC and BBWPL referred to in Section Us guarantees The Back-to-Back Guarantees and the Purchasers Guaranty referred to in Section Us person Us securities act Us Vendor Vestas Vestas-australia Wake loss Wind Farm asset Wind investment 1 Wind investment 2 Has the meaning given to that term by Regulation S under the US Securities Act The United States Securities Act of 1933, as amended and in force at the date of this Offer Document The seller under the US Acquisition Agreement, BBWE Vestas Wind Systems A/S, a company incorporated in Denmark Vestas-Australian Wind Technology Pty Ltd (ABN ), a subsidiary of Vestas A stream of slowed air behind the wind turbine as wind passes through the blades which is slowed as energy is being extracted is known as the wake and wind turbines placed in the wake of another wind turbine will experience slower winds reducing power output and increasing wear and tear A wind farm included in the Initial Portfolio BBPOP Wind Investment LLC, as at completion of the US Acquisition, a subsidiary of BBWPUS BBPOP Wind Investment 2 LLC, as at completion of the US Acquisition, a subsidiary of BBWPUS WWp or Walkaway Walkaway Wind Power Pty Ltd (ABN ) Walkaway acquisition agreement Walkaway purchase price Walkaway purchase price securities Wind resource Wtg The sale and purchase agreement dated 14 September 2005 between the Minority Interest Holders and, among others, BBWPL, the Responsible Entity and the Custodian in relation to the sale of indirect interests in 25% of the capital of WWP The price payable to the Minority Interest Holders under the Walkaway Acquisition Agreement, being A$48 million 34,285,712 BBWPL Shares and 34,285,712 Units, being the purchase price payable under the Walkaway Acquisition Agreement A reference to the quality of energy potentially available from the wind in a particular place Wind turbine generator 179

182 APPENDiX 01 SummAry of bbwp historical FiNANciAl PErFormANcE Set out in Figure A1.1 is a summary of BBWP s historical financial performance under AGAAP and A-IFRS for the years ended 30 June 2004 and Figure A1.1 Profit and Loss Statement AGAAP A-IFRS AGAAP A-IFRS ($ 000) FY 2004 FY 2004 FY 2005 FY 2005 Total product revenue 16,607 16,607 ebitda (46) (46) 12,860 12,860 Depreciation and amortisation (6,101) (5,672) ebit (46) (46) 6,759 7,188 Net borrowing costs 3,045 3,045 (2,280) (2,280) profit before tax 2,999 2,999 4,479 4,908 Income tax (expense)/benefit (236) (236) (1,776) (1,776) profit after tax 2,763 2,763 2,703 3,132 Past performance is not an indication of future performance. Refer to the explanations of A-IFRS adjustments that follow Figure A1.2 for an understanding of the movement in depreciation and amortisation shown above in A1.1 in

183 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT BBWp HistoriCal and pro ForMa FinanCial position Set out below in Figure A1.2 is BBWP s pro forma financial position as at 30 June Figure A1.2 Pro Forma Balance Sheet as at 30 June 2005 A-IFRS Offer Debt Unaudited ($ 000) AGAAP A-IFRS proceeds Acquisitions Facility Pro Forma Current assets Cash and cash equivalents 110, ,972 (104,325) 338,761 Receivables 8,230 11,453 19,683 Prepayments 5,703 5,703 Other assets 12,408 12,408 total current assets 136, ,972 (92,872) 376,555 Non-current assets Receivables 10,735 10,735 Prepayments 6,844 6,844 Deferred tax asset 4,292 3,210 8,400 15,902 Property, plant and equipment 399, , ,020 Equity accounted investment 83,200 83,200 Intangibles 23,694 (877) 75,576 98,393 total non-current assets 445,442 2,333 8, , ,094 total assets 581,897 2, , ,047 1,153,649 Current liabilities Payables 26,762 26,762 Tax provision 1,094 1,094 Hedge liability Interest bearing liabilities 185,769 (8,662) 177,107 total current liabilities 213, (8,662) 205,084 Non-current liabilities Payables 2,235 2,235 Deferred tax liabilities 5,211 5,211 Hedge liability 10,581 10,581 Interest bearing liabilities 188, ,446 8, ,442 total non-current liabilities 195,780 10, ,446 8, ,469 total liabilities 409,405 10, , ,553 net assets 172,492 (8,369) 341,372 18, ,096 Equity Total parent equity interest 163,987 (8,369) 341,372 27, ,096 Total outside equity interest 8,505 (8,505) total equity 172,492 (8,369) 341,372 18, ,096 Note: assumes the Offer 181

184 APPENDIX 01 SUMMARY OF BBWP HISTORICAL FINANCIAL PERFORMANCE impact of transition to a-ifrs The Directors anticipate that all accounting policies will be materially consistent with those used for AGAAP reporting purposes other than the items specified below. Full details of the relevant AGAAP accounting policies are set out in Note 2 of Appendix 2. BBWP will report its results for the half year ended 31 December 2005 and subsequent periods on the basis of A-IFRS. Adjustments to the application of A-IFRS accounting policies may be necessary between the date of this Offer Document and the date BBWP s first complete A-IFRS financial report for the year ended 30 June Such adjustments may be required to reflect the effects of changes in financial reporting requirements that are relevant to BBWP s first complete A-IFRS financial report arising from new or revised standards or interpretations issued by the Australian Accounting Standards Board subsequent to the date of this report. Adjustments to the application of A-IFRS and accounting policies may also be necessary to reflect the effects of changes to BBWP s operations, or additional guidance on the application of A-IFRS in a particular industry, or to a particular transaction. a-ifrs adjustments 1 goodwill Goodwill is the difference between the cost of an acquisition and the fair value of the identifiable net assets acquired. Under AGAAP, goodwill can be amortised over a period of time not exceeding 20 years. The investment in Olivo wind farms in Spain exceeded the fair value of net assets acquired and hence resulted in the recognition of goodwill. Amortisation expense relating specifically to these assets has been incurred in 2005 financial statements as prepared under AGAAP. Under A-IFRS, goodwill is tested for impairment on an annual basis and is not amortised. Consequently, the amortisation expense of $0.4 million, which was incurred under AGAAP in 2005, is not charged under A-IFRS and there is a corresponding increase in the amount of intangible assets. Furthermore, under AGAAP, goodwill that relates to the acquisition of a foreign entity is translated at the rate of exchange at the time of the transaction, whereas, under A-IFRS, the current rate at balance date is used. In 2005, the acquisition of three Olivo wind farms in Spain resulted in the recognition of goodwill. Under A-IFRS, the translation of this goodwill at balance date results in an Australian dollar equivalent amount that is $1.3 million lower than the AGAAP equivalent translation at historic rates. The combined effect of the above is to decrease goodwill by $0.9 million. 2 Financial instruments Derivative contracts (financial instruments) are used to hedge exposures to interest rates. Under AGAAP, these derivative contracts are accounted for as hedges. Under AGAAP, where a derivative contract is entered to hedge a transaction, gains and losses are deferred and brought to account in the same period as the hedged transaction. Under A-IFRS, derivatives can only be classified as hedges to the extent that effectiveness tests are met. If these tests are satisfied, any gains and losses on the derivative are recognised within equity until the hedged transaction occurs at which point they are released to profit and loss. To the extent that the tests are not satisfied, then all or some of the gains and losses are immediately reflected within profit and loss. Derivative contracts have been entered into to mitigate interest rate exposure. These contracts have been treated as hedges and gains and losses have been recognised at the time that the hedged transaction takes place. Under A-IFRS, derivative contracts, which are outstanding at 30 June 2005, effectively hedge interest rate exposure. The fair value of these contracts results in a liability amounting to $10.7 million, which has been recorded within equity. This liability has a nil tax base, which results in the recognition of a deferred tax asset of $3.2 million. As AASB 1, First time adoption International Financial Reporting Standards contains an exemption from the requirement to restate comparative information for the requirements of AASB 132, Financial Instruments: Disclosure and Presentation and AASB 139, Financial Instruments: Recognition and Measurement the adjustment will not apply until 1 July 2005 however for the purposes of the pro forma statements of financial position the adjustment has been included. 182

185 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 3 taxation A-IFRS adopts a balance sheet approach to determining deferred tax balance, which represents a fundamental change to the income statement approach that has been historically required under AGAAP. This method recognises a deferred tax balance when there is a difference between the carrying amount of an asset or liability under accounting and tax bases. Income tax expense comprises current and deferred tax. The tax effect is temporarily carried forward in the balance sheet as a deferred tax asset or liability. Deferred tax assets are not brought to account unless realisation of the asset is probable. Other than the adjustment noted relating to the interest rate swaps, no other adjustments are expected to have a material impact on BBWP. pro ForMa adjustments The Pro Forma Statement of Financial Position reflects the actual financial position of BBWP at 30 June 2005 under A-IFRS, adjusted for the following: Proceeds of Offer An amount of $361.0 million capital raised by the Offer (assuming the Offer), less $28.0 million of expenses related to the Offer. The capital raised under the Offer comprises million Stapled Securities at an Offer Price of $1.40 per Stapled Security. Acquisitions Figure A1.3 details the effect of the Acquisitions on the pro forma balance sheet. Figure A1.3 Balance Sheet Acquisitions Alinta Lake Bonney Total ($ 000) US Wind Farm Stage 2 Spain Acquisitions Assets Cash and cash equivalents (83,200) (1,399) (19,726) (104,325) Other current assets 11,453 11,453 Property, plant and equipment 162, ,143 Equity accounted investment 83,200 83,200 Intangibles 20,000 55,576 75,576 total assets (1,399) 20, , ,047 Liabilities Non current interest bearing liabilities 209, ,446 total liabilities 209, ,446 net assets (1,399) 20,000 18,601 Total parent equity 7,106 20,000 27,106 Total outside equity interest (8,505) (8,505) total equity (1,399) 20,000 18,601 number of securities ( 000s) 34,286 14,286 48,572 Concurrently with the offer US: investment in 80% economic interest in BBWPUS, which indirectly holds interests in five wind farms, for a purchase price of $81.5 million and costs of $1.7 million. The five wind farms are Sweetwater 1, Sweetwater 2, Blue Canyon, Caprock, and Combine Hills. BBWPUS indirectly accounts for these wind farms under the equity method (refer Section ). The investment in BBWPUS will be equity accounted (refer Section ). As a consequence, it will be recorded at cost and subsequently adjusted for post-acquisition changes in the net assets of BBWPUS. The purchase price of $81.5 million is based on independent valuation. 183

186 APPENDIX 01 SUMMARY OF BBWP HISTORICAL FINANCIAL PERFORMANCE other Alinta Wind Farm: purchase of the remaining 25% interest in Walkaway Wind Power Pty Ltd ( WWP ) in exchange for 34.3 million BBWPL Shares and 34.3 million Units; one BBWPL Share and one Unit together are valued at $1.40. The purchase price of $48.0 million, which was determined through independent valuation, and costs of $1.4 million exceeded the book value of the outside equity interest ($8.5 million), resulting in a reserve amounting to $40.9 million. The outside equity interest of $8.5 million, which is included within the historical AGAAP financial statements of GWP, represents 25% of the net assets of WWP. Following the acquisition of the remaining 25% interest, this outside equity interest will be eliminated; and All the net assets of WWP are included in the historical AGAAP financial statements of GWP as GWP controls WWP for accounting purposes. Lake Bonney Stage 2: BBWP has entered into a contract with the LB2 Vendors to purchase LB2 Co and the right to construct and operate the Lake Bonney 2 wind farm in exchange for 14.3 million BBWPL Shares and 14.3 million Units in aggregate; one BBWPL Share and one Unit, together valued at $1.40, total value $20.0 million. This LB2 Purchase Price is subject to a purchase price adjustment which may arise at LB2 Financial Close if certain variables have changed from the base case valuation agreed pursuant to the LB2 Acquisition Agreement. The LB2 Consideration Securities are subject to a restricted securities and holding lock arrangement until LB2 Financial Close. Spain: as part of the Olivo Portfolio, BBWP entered into an agreement with Gamesa to purchase three wind farms (El Redondal, El Sardon, Serra da Loba) for $229 million (euro 144 million), including a contracted payment of $10.3 million (euro 6.5 million) for La Plata, costs of $3.8 million (euro 2.4 million) and debt assumed by BBWP of $171 million (euro 108 million). These acquisitions will be partly funded from existing cash reserves and partly by utilising approximately $38 million (euro 24 million) of drawings under the Debt Facility. The assets acquired include cash and working capital of $11.5 million (euro 7.2 million) and fixed assets of $162 million (euro 102 million). The consideration paid exceeded the fair value of the net assets acquired, resulting in $55.6 million (euro 35.0 million) recognised as goodwill. debt Facility Niederrhein Wind Farm: the Debt Facility will be used to repay a bridging loan of approximately $8.7 million (euro 5 million) that was provided by a member of the Babcock & Brown Group to facilitate the acquisition of this wind farm by BBWPL. 184

187 APPENDiX consolidated FiNANciAl report gwp CONSOLIDATED FINANCIAL REPORT OF GLOBAL WIND PARTNERS FOR THE YEAR ENDED 30 JUNE 2005 statement of Financial performance for the year ended 30 june 2005 Consolidated Consolidated Note 1 July June June June 04 $ $ Revenues from ordinary activities 3(a) 23,217,365 3,045,609 Expenses from ordinary activities Borrowing costs 3(b) 7,693, Depreciation and amortisation 6,101,522 Other operating costs 3(c) 4,943,826 45,946 total expenses from ordinary activities 18,738,580 46,402 profit from ordinary activities before income tax expense 4,478,785 2,999,207 Income tax expense relating to ordinary activities 4 1,775, ,704 net profit 2,703,112 2,762,503 Net profit attributable to outside equity interest net profit attributable to members of global Wind partners 2,703,112 2,762,503 Retained earnings Opening balance at the beginning of the period 1,624,992 Net profit 2,703,112 2,762,503 Transfer from contributed equity 10,027,017 Distributions declared and paid (12,010,161) (1,137,511) Closing balance at the end of the period 2,344,960 1,624,992 In August 2004 the Trust made a distribution of 2.8c per security totalling $1,745,800. In March 2005 the Trust made a second distribution of 2.2c per security totalling $2,289,324. In June 2005 the Trust made a third distribution of 4.9c per security of $7,975,037. In the period ended 30 June 2004, the Trust made a distribution of $1,137,511 in December The above statement of financial performance should be read in conjunction with the accompanying notes. 185

188 APPENDIX CONSOLIDATED FINANCIAL REPORT GWP CONSOLIDATED FINANCIAL REPORT OF GLOBAL WIND PARTNERS FOR THE YEAR ENDED 30 JUNE 2005 statement of Financial position as at 30 june 2005 Consolidated Consolidated Note $ $ Current assets Cash and cash equivalents 5 110,113,997 79,442,728 Receivables 6 8,230, ,820 Prepayments 7 5,702,711 Other assets 8 12,408,525 1,320,259 total current assets 136,455,455 81,249,807 Non-current assets Receivables 6 10,734,369 Prepayments 7 6,844,444 9,333,333 Deferred tax assets 4,292,173 1,833,086 Property, plant and equipment 9 399,876,716 93,131,688 Intangibles 10 23,694,361 total non-current assets 445,442, ,298,107 total assets 581,897, ,547,914 Current liabilities Payables 11 26,762, ,251 Tax provision 1,093,568 Interest bearing liabilities ,769, ,302,157 total current liabilities 213,625, ,737,408 Non-current liabilities Payables 11 2,234,370 Deferred tax liabilities 5,210,982 2,069,790 Interest bearing liabilities ,334,367 total non-current liabilities 195,779,719 2,069,790 total liabilities 409,404, ,807,198 net assets 172,492,577 63,740,716 Equity Parent equity interest Contributed equity ,888,744 62,115,724 Reserves 15 (3,246,129) Retained earnings 2,344,960 1,624,992 Total parent entity interest in equity 163,987,575 63,740,716 Total outside contributed equity 14 8,505,002 total equity 172,492,577 63,740,716 The above statement of financial performance should be read in conjunction with the accompanying notes. 186

189 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT statement of cash flows for the year ended 30 june 2005 Consolidated Consolidated Note 1 July June June June 04 $ $ Cash flows from operating activities Receipts from customers 10,870,986 Payments to suppliers (1,462,727) (9,379,279) Interest received 5,376,582 2,982,868 Interest and other finance costs paid (20,503,892) (10,828,041) Other (885,008) net operating cash flows used in ordinary activities (5,719,051) (18,109,460) Cash flows from investing activities Purchase of controlled entities (35,708,194) (424,079) Payments for property, plant and equipment (201,280,870) (82,304,103) net investing cash flows used in investing activities (236,989,064) (82,728,182) Cash flows from financing activities Proceeds from issuance of securities 121,305,039 62,115,724 Distributions paid (12,010,161) (1,137,511) Proceeds from related parties 8,661,717 Proceeds from borrowings 167,465, ,302,157 Payments of borrowings (12,042,952) net financing cash flows provided by financing activities 273,379, ,280,370 net increase in cash held 30,671,269 79,442,728 Cash at the beginning of the financial period 79,442,728 Cash at the end of the financial period 5 110,113,997 79,442,728 The above statement of financial performance should be read in conjunction with the accompanying notes. 187

190 APPENDIX CONSOLIDATED FINANCIAL REPORT GWP CONSOLIDATED FINANCIAL REPORT OF GLOBAL WIND PARTNERS FOR THE YEAR ENDED 30 JUNE 2005 notes to the financial statements for the year ended 30 june Corporate information The registered office of Global Wind Partners Management Pty Ltd and Babcock & Brown Asset Holdings Pty Ltd are located at: Level 39, The Chifley Tower 2 Chifley Square Sydney NSW 2000 The principal activities of Global Wind Partners are as a developer and investor in the wind energy sector in Australia and overseas. The Directors during and at the year end were: Global Wind Partners Management Pty Limited Babcock & Brown Asset Holdings Pty Limited Peter Hofbauer James Babcock Jeffrey Pollock Phillip Green Warren Murphy Peter Hofbauer Christopher Chapman Philip kachoyan Michael Maxwell Matthew McCann Resigned 13 April 2005 Shahen Mekertichian Warren Murphy Resigned 13 April 2005 Robert Topfer Andrew Tyndale Sylvia Wiggins Resigned 13 April 2005 Global Wind Partners does not have any employees (2004: Nil). 2 Statement of significant accounting policies a) Basis of accounting The Directors are of the view that the entity is not a reporting entity. The financial statements have been prepared as a special purpose financial report. The accounts have been prepared for the year ended 30 June 2005 with comparatives from 11 June 2003 to 30 June The Directors have determined that in order for the financial report to give a true and fair view of the entity s performance, cash flows, and financial position, the requirements of Accounting Standards and other professional reporting requirements in Australia relating to the measurement of assets, liabilities, revenues, expenses and equity should be complied with. Accordingly, the Directors have prepared the financial report in accordance with Australian Accounting Standards and other professional reporting requirements in Australia with the following exceptions: AASB 1017 Related Party Disclosures The financial statements have been prepared in accordance with the historical cost convention and do not take account of changes in either the general purchasing power of the dollar or in the prices of specific assets. 188

191 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT b) Combined financial reports The shares in the Company and the units of the Trust are combined and issued as a stapled security. The shares in the Company and the units of the Trust cannot be traded separately and can only be traded as stapled securities. Neither entity has acquired or controls the other. In accordance with Urgent Issues Group Abstract 13 The Presentation of the Financial Report of an Entity whose Securities are Stapled, combined consolidated financial statements have been prepared for Global Wind Partners. c) Principles of consolidation The combined consolidated financial statements are prepared by combining the financial statements of all entities that comprise the combined consolidated group as at 30 June 2005 and the results of all controlled entities for the financial year then ended. Where control of an entity is obtained during the financial year, its results are included in the combined consolidated statement of financial performance from the date on which control is obtained. Where control of an entity ceases during the financial period its results are included for that part of the year during which control existed. Consistent accounting policies are employed in the preparation and presentation of the combined consolidated financial statements. All inter entity balances and transactions, and unrealised profits arising from inter entity transactions, have been eliminated. d) Cash and cash equivalents Cash on hand and in banks and short-term deposits are stated at nominal value. For the purposes of the Statement of Cash Flows, cash includes cash on hand and in banks, deposits and money market investments readily convertible to cash within two working days, and restricted deposits held for security, net of outstanding bank overdrafts. e) Receivables Receivables are recognised and carried at original invoice amount less a provision for any uncollectible debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. f) Payables Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the entity. Payables to related parties are carried at the principal amount. Interest, when charged by the lender, is recognised as an expense on an accrual basis. g) Income recognition Interest income and expense Interest income and expense is recognised on an accrual basis. Product sales Product sales are generated from the sale of Green Energy and Green Products from the Lake Bonney and Spanish wind farms. Revenue from product sales are recognised on an accrual basis. Product sales revenue is only recognised when control of the products has passed to the buyer and Global Wind Partners attains the right to be compensated. h) Income tax Tax effect accounting is applied using the liability method whereby income tax is regarded as an expense and is calculated on the accounting profit allowing for permanent differences. To the extent timing differences occur between the time items are recognised in the financial statements and when items are taken into account in determining taxable income, the net related taxation benefit or liability calculated at the current tax rates is disclosed as a future income tax benefit or a provision for deferred income tax. The net future income tax benefit relating to tax losses and timing differences is not carried forward as an asset unless the benefit is virtually certain of being recognised. 189

192 APPENDIX CONSOLIDATED FINANCIAL REPORT GWP CONSOLIDATED FINANCIAL REPORT OF GLOBAL WIND PARTNERS FOR THE YEAR ENDED 30 JUNE 2005 i) Goodwill On acquisition of a controlled entity, the difference between the purchase consideration plus incidental expenses and the fair value of identifiable net assets acquired is initially brought to account as goodwill and is amortised over the period during which the benefits are expected to arise, but not exceeding 20 years. The balances are reviewed annually and any balances representing future benefits considered to be no longer probable are written off. j) Property, plant & equipment Plant and equipment is brought to account at cost, being the fair value of the consideration provided plus acquisition costs directly attributable to the acquisition. Depreciation is provided on plant and equipment excluding their residual values over their estimated useful life commencing from the time the asset is held ready for use on a commercial basis. Depreciation is charged using the straight line method over the useful life of the asset being between years. All non-current assets are reviewed annually to determine whether their carrying amounts require write-down to recoverable amounts. The write-down is expensed in the reporting period in which it occurs. Recoverable amount is determined using net cash flows discounted to present values. k) Foreign exchange Transactions in foreign currencies are initially recorded in Australian dollars at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. All differences in the consolidated financial report are taken to the Statement of Financial Performance with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in the Statement of Financial Performance. The financial statements of all foreign operations are translated to Australian currency using the current rate method as they are considered self-sustaining. The exchange differences arising on the translation are taken directly to the translation reserve as a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the Statement of Financial Performance. l) Project costs Expenses relating to new projects are deferred to future years to the extent that discounted future benefits are expected to equal or exceed those costs and any future costs necessary to give rise to the benefits. The carrying values of deferred project expenses are reviewed yearly to determine whether the costs will be recouped through the successful development or sale of the project. Where it is considered that a project may not proceed or that the level of deferred project expenses is in excess of their recoverable amount, a provision for write-down is made in the reporting period concerned. Deferred costs are transferred to plant and equipment from the time the asset is held ready for use on a commercial basis. Pre-completion revenue and interest is included in the cost of the asset. m) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. The Group s operations comprise the development and commercialisation of wind farms around the world. All operations are in the same business segment although they differ geographically. n) Comparative information Global Wind Partners commenced operations on 11 June Comparative information is for the period from 11 June 2003 to 30 June Where necessary, comparative information has been reclassified to achieve consistency in disclosure with current financial year amounts and other disclosures. 190 o) Distributions The Trust is entitled to make distributions to the extent that it has an operating surplus. In the event that a distribution exceeds any operating surplus, a transfer from contributed equity is permitted under the Trust s constitution to meet any operating surplus shortfall.

193 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 3 Revenues and expenses from ordinary activities Note 1 July June June June 04 $ $ a) Revenues from ordinary activities Green energy and green products 16,607,037 Interest income 5,413,204 3,045,609 Foreign exchange 1,197,124 23,217,365 3,045,609 b) Borrowing costs Interest paid or payable 7,477, Bank charges 215, ,693, c) Other operating costs Connection fees 1,014,463 Administration, consulting and legal fees 1,677,146 45,946 Wind farm operations and maintenance costs 2,252,217 4,943,826 45,946 4 Income tax Prima facie income tax at 30% 1,343, ,762 Tax effect of permanent differences: Trust (profit)/ loss not assessable 13,777 (949,973) Non deductible legal fees 96,076 Non deductible interest 56,267 Tax expense upon resetting tax values 286,915 Amortisation of goodwill 128,823 Effect of different overseas tax rates 137,095 income tax expense attributable to ordinary activities 1,775, ,704 Comprising: Current tax payable 1,093,568 Deferred tax asset (2,459,087) (1,833,086) Deferred tax liability 3,141,192 2,069,790 income tax expense 1,775, ,704 The potential future income tax benefit will only be obtained if: a) the relevant company derives future assessable income of a nature and an amount sufficient to enable the benefits to be realised, or the benefit can be utilised by another company in the consolidated entity in accordance with Division 170 of the Income Tax Assessment Act 1997; b) the relevant company and/or the consolidated entity continues to comply with the conditions for deductibility imposed by the law; and 191

194 APPENDIX CONSOLIDATED FINANCIAL REPORT GWP CONSOLIDATED FINANCIAL REPORT OF GLOBAL WIND PARTNERS FOR THE YEAR ENDED 30 JUNE 2005 c) no changes in tax legislation adversely affect the relevant company and/or the consolidated entity in realising the benefit. Effective 1 July 2003, for the purposes of income taxation, Global Wind Partners Management Pty Ltd and B&B Wind Pty Ltd formed a tax consolidation group. On 4 December 2003 NP Projects 1 LLC and Lake Bonney Wind Power Pty Ltd joined the tax consolidation Group. On 12 August 2004 GWP Walkaway Pty Ltd became a member of the tax consolidation Group. On 23 November 2004 GWP Europe Pty Ltd became a member of the tax consolidation Group. On 9 February 2005 GWP Europe 2 Pty Ltd became a member of the tax consolidation Group $ $ 5 Cash and cash equivalents Cash 60,392,727 19,194,175 Deposits 49,721,270 60,248, ,113,997 79,442,728 Cash includes cash and cash equivalents on hand and in banks, deposits as well as money market investments readily convertible to cash within two working days, and restricted deposits held for security, net of outstanding bank overdrafts. Cash held on deposit is interest bearing and earns interest at a variable rate equal to the 90 day bank bill rate which is in between the range of 5-10%. 6 Receivables Current Trade debtors 8,129, ,079 Interest receivable 99,363 62,741 Other 1,207 total current receivable 8,230, ,820 Non-current Amounts due from related parties 3,434,998 Other receivables 7,299,371 total non-current receivables 10,734,369 7 Prepayments Current Prepaid wind farm operations and maintenance agreements 1,866,667 Other prepayments 3,836,044 total current prepayments 5,702,711 Non-current prepaid wind farm operations and maintenance agreements 6,844,444 9,333,333 8 Other assets Current GST and other tax receivables 12,229,572 1,320,259 Other 178,953 total current other assets 12,408,525 1,320,

195 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT $ $ 9 Property, plant & equipment Non-current Plant and equipment (at cost) 249,804,957 Accumulated Depreciation (5,672,110) 244,132,847 Project costs 155,743,869 93,131,688 total property, plant & equipment 399,876,716 93,131,688 Plant and equipment (at cost) Carrying amount at beginning of the year Acquired plant and equipment 111,893,352 Transferred from project costs 137,911,605 Carrying amount at end of the year 249,804,957 Accumulated depreciation Carrying amount at beginning of the year Depreciation charged during the year 5,672,110 Carrying amount at end of the year 5,672,110 Project costs Carrying amount at beginning of the year 93,131, 688 Additions 200,523,786 93,131,688 Transferred to plant and equipment (137,911,605) Carrying amount at end of the year 155,743,869 93,131, 688 Borrowing and other finance costs recognised during the year as part of qualifying assets amounted to $12,476,410 (2004: $10,827,585). The capitalisation of borrowing and other finance costs incurred during construction is dependent upon the development and commercial success of the respective wind farms. The capitalisation rate is 6.3% (2004: 5.4%) as all borrowing costs associated with construction are capitalised. Amortisation of the costs carried forward for the construction phase is not being recognised pending the commencement of operations. 10 Intangibles Non-current Goodwill on acquisition of Spanish wind farms 24,123,772 Accumulated Amortisation (429,411) total intangibles 23,694, Payables Current Accounts payable 11,516,266 Related parties 9,555, ,000 Interest payable 334,251 GST payable 5,690,749 total current payables 26,762, ,251 Non-current other payables to associated companies 2,234,

196 APPENDIX CONSOLIDATED FINANCIAL REPORT GWP CONSOLIDATED FINANCIAL REPORT OF GLOBAL WIND PARTNERS FOR THE YEAR ENDED 30 JUNE $ $ 12 Interest bearing liabilities Current Banking facilities 177,107, ,302,157 Related parties 8,661,717 total current interest bearing liabilities 185,769, ,302,157 Non-current Banking facilities 188,334,367 The Construction and GST facility were drawn under facilities provided by external banks. Amounts owing under the facilities are secured by charges over the assets. 13 Contributed equity Contributed equity (Number) No. No. Opening balance at the beginning of the period 62,115,724 Securities issued during the period 100,640,130 62,115,724 Closing balance at the end of the period 162,755,854 62,115,724 Contributed equity ($) $ $ Opening balance at the beginning of the period 62,115,724 Value of securities issued during the period 112,800,037 62,115,724 Transfer to retained earnings (10,027,017) Closing balance at the end of the period 164,888,744 62,115,724 On 30 August 2004 the entity issued 41,944,472 securities at a price of $1.08 as part of the construction project for Walkaway Wind Power. On 16 March 2005 the entity issued 58,695,658 at a price of $1.15 as part of the acquisition of Olivento and its subsidiaries $ $ 14 Outside equity interest Opening balance at the beginning of the period Equity issued during the period 8,505,002 Closing balance at the end of the period 8,505,002 The outside equity interest comprises $8,505,000 in Walkaway Wind Power Pty Ltd held by Renewable Power Ventures Investment Trust and $2 in Windpark Niederrhein GmbH & Co kg held by Babcock & Brown Windpark Verwaltungs GmbH. 194

197 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT $ $ 15 Reserves Foreign currency translation reserves Opening balance at the beginning of the period Translation of overseas controlled entities (3,246,129) Closing balance at the end of the period (3,246,129) 16 Segment information The Group s operations comprise the development of and investing in wind farms. All the operations are in the same business segment although they differ geographically. Sales Europe 7,601,564 Australia 9,005,473 total sales 16,607,037 Total assets Europe 235,652,572 Australia 346,244, ,547,914 total assets 581,897, ,547,914 Total liabilities Europe 199,711,403 Australia 209,693, ,807,198 total liabilities 409,404, ,807,198 Capital expenditure Europe 124,652,606 Australia 169,168,178 93,131,688 total capital expenditure 293,820,784 93,131,688 Analysis of income Europe 7,773,476 Australia 15,443,889 3,045,609 total analysis of income 23,217,365 3,045,609 Analysis of expenses Europe 5,219,132 Australia 13,519,448 46,402 total analysis of expenses 18,738,580 46,402 Analysis of goodwill Europe 24,123,772 Australia total goodwill 24,123,772 As at the 30 June 2005 Global Wind Partners operates three wind farms in Spain and one in Australia. 195

198 APPENDIX CONSOLIDATED FINANCIAL REPORT GWP CONSOLIDATED FINANCIAL REPORT OF GLOBAL WIND PARTNERS FOR THE YEAR ENDED 30 JUNE $ $ 17 Related party transactions As at 30 June 2005 the Group is owned by B&B Infrastructure 50%, B&B Blue Wind 17.17% and various private investors own the remaining 32.83%. The following transactions were carried out by related parties: Services Management services 864,397 Development services 28,144,077 5,468,365 total services 29,008,474 5,468,365 total interest expense 953,251 Year end balance of loans receivable non-current loans receivable 3,434,998 Year end balances of loans and payables Current Borrowings 8,661,717 Payables 9,555, ,000 total loans and payables 18,216, ,000 Interest charged during the year amounted to $953,251. The interest rates ranged between 5.25% and 8.75%. 18 Commitments a) Lease Commitments Operating leases Commitments for minimum lease payments in relation to non cancellable operating leases for land are as follows: Not later than 1 year 1,321, ,50 Later than 1 year and not later than 5 years 7,408, ,000 Later than 5 years 53,431,155 6,037,500 62,160,888 7,245,000 b) Expenditure Commitments Estimated capital expenditure contracted for at reporting date, but not provided for or payable Not later than 1 year 128,905,119 43,104,723 Later than 1 year and not later than 5 years 4,000,000 Later than 5 years 20,000, ,905,119 43,104, An amount of $57,533,617 of expenditure commitments included above within the commitments due not later than one year are subject to vendors achieving certain conditions. The land lease payments relating to the conditional expenditure commitments amounts to $20,966,100. In the event that these conditions are not met, GWP is not committed to the capital expenditure or the land lease payments. Outstanding letters of credit amounted to $10,694,436 at 30 June 2005 (2004: $10,500,000).

199 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT 19 International financial reporting standards For reporting periods beginning on or after 1 January 2005, Global Wind Partners will be required to prepare financial statements using Australian Standards that have been revised to satisfy the requirements of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Global Wind Partners will report for the first time in compliance with Australian IFRS when the results for the half year ended 31 December 2005 are released. Global Wind Partners is required to prepare an opening balance sheet in accordance with Australian IFRS as at 1 July Most accounting policy adjustments to retrospectively apply Australian IFRS will be made against retained earnings in this opening balance sheet. However, transitional adjustments relating to those standards for which comparatives are not required will only be made on 1 July Comparatives are not required for AASB 132: Financial Instruments: Disclosure and Presentation, AASB 139: Financial Instruments: Recognition and Measurement. The Group has identified the significant differences and potential impact which are summarised below: Goodwill Reversal of goodwill of $429,411 with corresponding reduction in net assets. Lower expense as amortisation of goodwill will cease. Impairment Testing Potential volatility in future earnings. As at 30 June 2005 there were no impairment adjustments. Amortisation of goodwill incurred in business acquisitions will cease and will be replaced by annual impairment testing, which may impact future earnings. There will be a change to the Group s current accounting policy which amortises goodwill over a maximum of 20 years. Under AGAAP, the Company assesses the recoverable amount for all non-current assets carried at cost at each reporting date. The recoverable amount of an asset is the net amount expected to be recovered through the cash inflows and outflows arising from its continued use and subsequent disposal. These cash flows have not been discounted to their present value. Where the carrying amount of a non-current asset is greater than its recoverable amount, the asset is written down to its recoverable amount. Where net cash inflows are derived from a group of assets working together, recoverable amount is determined on the basis of the cash flows of the relevant group of assets. Any provisions for recoverable amount write down are included in the Statement of Financial Performance in the period in which the recoverable amount write down occurs. Under Australian IFRS, assets for which the Group does not reflect changes in fair value in the Statement of Financial Performance will need to be assessed for indications of impairment on at least an annual basis, and tested for impairment only when indications of impairment arise. The calculation of impairment will require the use of discounted net cash flows rather than undiscounted. Impairment charges recorded in one period cannot be subsequently reversed in future periods if the underlying original asset value is recovered. Financial Instrument Volatility in future earnings. As at 30 June 2005 there were no financial instruments adjustments. Under AGAAP, it is permissible to hold certain financial instruments at cost (for example, equity investments not held for trading purposes). Under Australian IFRS, broadly all financial instruments other than debt and investments held to maturity must be held at fair value. Fair value adjustments are made through equity when the underlying asset has been designated as available for sale and through profit and loss for derivatives, trading assets and where the reporting entity elects to reflect the adjustment in this manner. When a financial instrument designated as available for sale is sold, any cumulative fair value adjustments reflected in equity in respect of that instrument are released through profit and loss. Global Wind Partners intends to designate its financial instruments as hedging instruments. 197

200 APPENDIX CONSOLIDATED FINANCIAL REPORT GWP CONSOLIDATED FINANCIAL REPORT OF GLOBAL WIND PARTNERS FOR THE YEAR ENDED 30 JUNE 2005 Hedging Volatility in future earnings. The fair value of the hedges results in a hedge liability under AIFRS of $10,701,670. Under AGAAP, where a derivative is held to hedge a forecast transaction, gains and losses on those instruments are deferred and brought to account in the same period as the hedged transactions. Under Australian IFRS, derivatives may only be classified as hedges of forecast transactions where hedge designation, documentation and effectiveness tests can be met. If these tests are satisfied, then the hedging derivative is measured at fair value and gains and losses are reflected directly in equity until the hedged transaction occurs when they are capitalised as part of the construction cost of the asset. For fully effective hedges, this results in an outcome similar to AGAAP. However, to the extent that hedges do not satisfy the above tests then all or some of the gain or loss is immediately reflected in profit and loss on transition to Australia $ $ 20 Statement of cash flows a) Reconciliation of net cash used in operating activities to operating profit after income tax operating profit after income tax 2,703,112 2,762,503 Depreciation 5,672,110 Amortisation 429,411 Borrowing costs capitalised (12,476,410) (10,827,585) Increase in receivables (11,799,514) (29,445) Increase in prepayments and other assets (14,302,088) (10,653,592) Increase in deferred tax asset (2,459,087) (1,833,086) Increase in deferred tax liability 3,141,192 2,069,790 Increase in payables 22,278, ,955 Increase in income tax payable 1,093,568 net cash used in operating activities (5,719,051) (18,109,460) b) Purchase of controlled entities Details of the aggregate cash outflow relating to the acquisition of Sierra del Trigo, S.A.U, Opinen S.A.U. and Villarrubia, S.A.U. and the aggregate assets and liabilities of those businesses at the date of acquisition were as follows: Consideration Cash paid 39,280, ,883 Cash included in net assets acquired (3,571,980) (26,804) Cash paid for purchase of controlled entities 35,708, ,079 Fair value of net assets acquired Receivables 8,727, ,375 Property, plant and equipment 98,659,858 Payables (5,085,560) (33,296) Loans (90,717,138) 11,584, ,079 Goodwill on acquisition 24,123, Sierra del Trigo, S.A.U. and Opinen S.A.U. were acquired in December Villarrubia, S.A.U. was acquired in June On 4 December 2003 the residual 25% interest in NP Projects LLC was acquired.

201 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT $ $ 21 Auditors remuneration Remuneration received, or due and receivable, by the auditor of the company for: Audit of the financial statements 214,911 Other services 20,680 total remuneration of auditors 235,591 Babcock & Brown Australia Pty Limited paid the auditors remuneration relating to the period ended 30 June Events occurring after balance date The Directors have indicated that Global Wind Partners will list its securities on the Australian Stock Exchange and change its name to Babcock & Brown Wind Partners. Details of the initial public offering are currently being prepared and are expected to be finalised in September Business acquisitions Voting shares Cost of Business Principal Date of acquired acquisition name activity acquisition % $ Sierra del Trigo, S.A.U. Wind energy December ,977,891 Opinen, S.A.U. Wind energy December ,166,477 Villarrubia, S.A.U. Wind energy June ,135,806 total business acquisitions 39,280,174 On 4 December 2003 the residual 25% interest in NP Projects LLC was acquired for $450, Financial instruments Interest rate risk The consolidated entity s exposure to interest rate risks and the effective interest rates of financial assets and liabilities, both recognised and unrecognised at the reporting date, are as follows: Fixed rate maturing in: Floating Floating Less Less More More Non Non interest interest than 1 than 1 than 5 than 5 interest interest rate rate year year years years bearing bearing Total Total S 000 S 000 S 000 S 000 S 000 S 000 S 000 S 000 S 000 S Financial assets Cash 60,393 19,194 60,393 19,194 Deposits 49,721 60,249 49,721 60,249 Current receivables 8, , Non-current receivables 10,734 10,734 GST and other tax receivables 12,408 1,320 12,408 1,320 total financial assets 60,393 19,194 49,721 60,249 31,372 1, ,486 81,250 Interest rates on cash and deposits are in the range of 0% 10%. 199

202 APPENDIX CONSOLIDATED FINANCIAL REPORT GWP CONSOLIDATED FINANCIAL REPORT OF GLOBAL WIND PARTNERS FOR THE YEAR ENDED 30 JUNE 2005 Fixed rate maturing in: Floating Floating Less Less More More Non Non interest interest than 1 than 1 than 5 than 5 interest interest rate rate year year years years bearing bearing Total Total S 000 S 000 S 000 S 000 S 000 S 000 S 000 S 000 S 000 S Financial liabilities Related party payables 9, , Other current payables 11, , Other non-current payables 2,234 2,234 Related party loans 8,661 8,661 GST payable 5,690 5,690 Banking facilities 177, , , , ,302 Interest rate swaps (313,203) (117,990) 162, , ,885 total financial liabilities (313,203) (117,990) 363, , ,219 13, , ,737 Interest rates on financial liabilities are in the range of 0% 10%. Unrecognised financial instruments Interest rate swaps are recorded above at nominal value. These swaps hedge interest rate risk on the banking facility debt with GWP being the fixed rate payer. The swaps are part of the debt facilities and are not separately recognised as at balance sheet date. The interest rate range is between 3.36%-6.26%. Credit risk The consolidated entity s maximum exposures to credit risk at reporting date in relation to each class of recognised financial assets, other than interest rate swaps, is the carrying amount of those assets as indicated in the statement of financial position. In relation to unrecognised interest rate swaps, credit risk arises from the potential failure of counterparties to meet their obligations under the contract. The consolidated entity s maximum credit risk exposure in relation to these is limited to the fair value of the swaps contracts at reporting date. The fair value of the swaps contracts at reporting date amounts to $10,701,670. The Group has no significant concentration of credit risk. Electricity sales are to companies with appropriate credit histories. The Group obtains finance from various financial institutions thereby limiting credit exposure. Concentrations of credit risk in relation to receivables arise in the following geographical segments. Maximum credit risk exposure for each concentration % of total trade debtors $ 000 s Geographic business segment Current Europe 82% 6,715 Australia 18% 100% 1, total current receivables 100% 100% 8, Non current Europe Australia 100% 10,734 total non current receivables 100% 10,

203 APPENDiX 03 SummAry of material contracts relating to wind FArm ProjEctS a3.1 lake Bonney stage 1 a3.1.1 Construction contract Lake Bonney Wind Power Pty Ltd (ACN ) ( LBWP ) entered into a construction contract with Vestas- Australian Wind Technology Pty Ltd (ACN ) ( Vestas-Australia ) for the engineering, design, procurement, construction, installation and testing of LB1. Under the construction contract, two separate warranty periods applied. If the construction contractor or an affiliate of the construction contract is the operator of LB1, a warranty period of 5 years applies. If any other person was the operator of LB1 a reduced warranty period of 2 years applies. Currently Vestas-Australia is the operator and therefore the warranty period continues until February The contractor warrants a minimum average power output provided that the unavailability or deficiency in output did not arise from a number of exceptions such as: normal wear and tear, force majeure, LBWP s failure to maintain the wind generation facility in accordance with operating manuals ( Warranty Expections ). During the warranty periods Vestas Australia must rectify defects in LB1 at its own cost except to the extent that they arise from a Warranty Exception. a3.1.2 operation & maintenance agreement LBWP has also entered into an operation and maintenance agreement with Vestas-Australia under which Vestas- Australia must perform all maintenance and operational activities to keep the wind generation facility in a productive and secure condition, maximise net electrical output, optimise the useful life of the wind generation facility and minimise downtime and disruption and operate and maintain the wind generation facility in a good, workmanlike, commercially reasonable and efficient manner. Vestas-Australia warrants that the wind generation facility will be available 97% of the time from 91 days after final completion of construction and that the average total measured power output is not less than 95% of the total warranted power output provided that the unavailability or deficiency in output did not arise from a Warranty Exception. The term of this agreement is 5 years. Compensation is payable by the operator to LBWP if the warranted availability is not met. The operator undertakes to train LBWP staff to operate the wind generation facility at the end of the term following which the care and control of the wind generation facility will be passed to LBWP. A party to the operation and maintenance agreement can terminate the agreement by giving notice if the other party has: breached a material obligation which remains unremedied for 30 days after receiving notice of the breach; or ceased to hold any material authorisation required to perform its material obligations under the power purchase agreement; or suffers an insolvency event. In addition LBWP may terminate by the giving of notice if the operator breaches an obligation to pay money and does not remedy the default within 5 business days. a3.1.3 Vestas guarantee Vestas Wind Systems A/S ( Vestas ), a company incorporated in Denmark, guarantees the performance of all obligations, liabilities and duties (including any obligation to pay money) of its subsidiary Vestas-Australia with respect to the construction contract and the operation and maintenance contract. Vestas also covenants to perform or cause to be performed all obligations of Vestas-Australia under or in connection with the construction contract and the operation and maintenance agreement. a3.1.4 power purchase agreement LBWP has entered into a power purchase agreement with Country Energy, a New South Wales governed electricity utility, under which LBWP sells to Country Energy and Country Energy must purchase all electricity generated at LB1. Supply has commenced under the agreement. The term of the agreement expires on 1 March LBWP is required under the agreement to create and transfer all renewable energy certificates and green energy rights (see note below) to Country Energy that it is possible to create and transfer with respect to any quantity of electricity produced and to do all things necessary to ensure that green energy rights are created and transferred. The agreement deems LBWP to have satisified its obligations in relation to renewable energy certificates and green energy rights if LWBP is legally unable to comply with those obligations as a result of the repeal, termination or modification of the relevant legislation. Any carbon credits (excluding renewable electricity certificates and green energy rights which are created at LB2 vest 50% in LWBP and 50% in Country Energy. 201

204 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS Country Energy will pay LBWP either (i) the principal price for electricity with renewable energy certificates and/or green energy rights ; or (ii) for electricity without renewable energy certificates and/or green energy rights due to a breach of the agreement, 90% of the reserve price black (which is less than half the principal price). LBWP can recoup any shortfall between the principal price and the reserve price black by transferring renewable energy certificates and/or green energy rights at a later date. Except where renewable energy certificates have ceased to exist or a credit for excess renewable energy certificates provided in previous years applies, the agreement imposes sanctions on LWBP where it fails to supply a required minimum number of renewable energy certificates. LWBP must either: provide replacement renewable energy certificates from another source (but not renewable energy certificates from native-forest wood waste); or reimburse Country Energy for the cost of obtaining renewable energy certificates to make up the shortfall. LWBP indemnifies Country Energy for certain claims arising out of LWBP s negligence or breach of the agreement, in each case in respect of electricity supplied under the agreement. The parties give each other further mutual indemnities for deliberate wrongful acts and breaches of material obligations under the agreement. Liability for consequential loss is expressly excluded. LWBP is the registered National Electricity Code participant, in respect of LB1 and is responsible for complying with the National Electricity Code in respect of LB1. A party can: terminate the power purchase agreement; or suspend the transfer of electricity, renewable energy certificates or green energy rights ; or suspend the obligation to make payments under the power purchase agreement, if the other party has: breached a material obligation which remains unremedied for 30 days after receiving notice of the breach; or ceased to hold any material authorisation required to perform its material obligations under the power purchase agreement; or suffers an insolvency event. a3.1.5 transmission connection agreement LBWP and ElectraNet Pty Ltd (ABN ) ( ElectraNet ) have entered into a transmission connection agreement under which LB1 is connected by a 132kV transmission line (which is now constructed and operational) into the ElectraNet transmission system. ElectraNet agrees to provide capability to enable LBWP to deliver electricity to ElectraNet s transmission network and to enable LBWP for limited purposes to take delivery of electricity from the ElectraNet transmission network. ElectraNet will provide, install and maintain metering equipment at the Lake Bonney substation in accordance with the National Electricity Rules (which replaced the National Electricity Code on 1 July 2005). The agreement is based on ElectraNet s standard connection terms with ElectraNet s potential liability under the agreement being limited to A$1,000,000 in any year and excludes liability for failure by LBWP to install necessary equipment or occurrence of an event affecting the electricity power system of the national grid. ElectraNet can terminate the transmission connection agreement by giving LBWP 5 business days notice if the wind generation facility has been disconnected following non-payment by LBWP which is not remedied within 20 business days, or if the wind generation facility has been disconnected following a failure by LBWP to comply with its obligations (other than payment) and LBWP has not remedied the default within a reasonable time. a3.1.6 land leases LBWP is a party to 16 leases with relevant landowners of the site of LB1. The initial term of each of the leases expires in September 2032 and LBWP has the option to extend the land leases for two further periods of five years. The leases allow LBWP to construct, operate and maintain as many wind turbines and associated equipment as it chooses on each site, subject to restrictions in each lease for wind turbine exempted areas. 202

205 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT A lessor may terminate a lease if LBWP (a) fails to pay any amount due under that lease 30 days after receiving notice of the failure from the lessor; (b) fails to comply in any material respect with any material term of the relevant lease 90 days after receiving notice of the breach from the lessor (c) fails to comply with its obligation to promptly repair any defects in the wind turbines which results in a substantial increase in the operating noise level within 30 days of receiving notice of the defect from the lessor; or (d) no wind turbine has been commissioned by 30 September 2005 (not applicable as all wind turbines are already commissioned). The leases require funds to be held on trust to protect the lessor in the event that the lessee (LBWP) fails to remove the wind farm plant and equipment prior to the end of the term of the lease. Upon removal of the plant and equipment to the satisfaction of the lessor, funds held on trust become payable to the lessee (LBWP). a3.1.7 Management services agreement LBWP has entered into a management services agreement with NP Operations Pty Ltd ACN under which management fees are payable for services provided to LBWP in connection with the wind farm during the operations phase. These services require NP Operations Pty Ltd to manage the wind farm generally including providing advice and expertise in connection with the management and general administration of the wind farm but does not include items for which Vestas-Australia is responsible under the operation & maintenance agreement referred to in Section A The agreement has recently been amended to reduce the amount payable annually by LBWP under the agreement and, in consideration of this agreement to amend by NP Operations Pty Ltd, LBWP has agreed to procure payment to NP Operations by BBWPL of A$2 million. a3.1.8 debt facilities agreement In June 2003, LBWP entered into a debt facilities agreement with financiers arranged by BNP Paribas, Australian branch. Under the agreement, a A$99,200,000 term facility and certain smaller debt facilities are available to LBWP LBWP has a number of project specific obligations under the agreement, including maintaining either the Country Energy power purchase agreement or an alternative power purchase agreement satisfactory to the financiers agent (BNP Paribas). LBWP must either have such a satisfactory power purchase agreement in place at least 5 years in advance of the expiry date for any such agreement or provide letters of credit to the financiers agent in amounts (being a specified % of the debt then outstanding) reducing over time. If no PPA or letter of credit is in place, then this will not be an event of default or a breach of the debt facilities agreement. However LBWP must make mandatory prepayments of debt and surplus cash is not available for distributions to shareholders. If a change in green energy law (described below) is announced or introduced as a bill by the responsible minister and this may or is reasonably likely to have an adverse effect (as defined) on the cashflows of LBWP (tested by reference to the financial ratios) or a material adverse effect, then LBWP cannot undertake any unbudgeted expenditure or discretionary capital expenditure and LBWP may be required by the financiers agent to demonstrate the absence of an adverse effect or material adverse effect (as described above). In either case, the debt facilities cannot be drawn and no distributions to equity are permitted while the review is ongoing (at least 120 days). A change in green energy law means the introduction of, or any change, (including in the interpretation of) any law or regulation of the Commonwealth of Australia or of South Australia which affects or is likely to affect (a) renewable energy certificates, green energy rights or carbon credits (these terms are defined in the debt facilities agreement); or (b) any other government scheme which promotes greenhouse gas abatement or renewable energy on which LBWP relies financially. The debt facilities agreement also contains project finance representations and warranties and undertakings usual for debt facilities of this kind. The debt facilities are also subject to project finance style events of default, also usual for debt facilities of this kind, which would enable the financiers to accelerate the repayment of the debt facilities, cancel their commitments to lend, enforce their security and appoint consultants to investigate LB1. The debt facilities agreement provides that surplus cash remaining after all payment obligations have been met in the manner specified in the agreement will be available to LBWP for use in its discretion. However, these proceeds will be locked up by the financiers and not available to LBWP (or therefore, for distribution to its shareholders) if certain events occur, including an event of default or potential event of default (as defined) or a failure to meet certain financial ratios. The financiers hold a comprehensive security package over LBWP s assets in support of the obligations of LBWP under the debt facilities agreement and interest rate hedge agreement. The shareholders in LBWP have given the financiers 203

206 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS a limited recourse mortgage over their shares in LBWP and all rights attaching to repayment of debt owed by LBWP to the shareholders (the debt is subordinated to the financiers secured money under the security package). a3.2 alinta Wind FarM a3.2.1 Construction contract Walkaway Wind Power Pty Ltd (ACN ) ( WWP ) entered into a construction contract with NEG Micon Australia Pty Ltd (ACN ) ( NEG Micon Australia ) for the engineering, design, procurement, construction, installation and testing of the Alinta Wind Farm. Under the construction contract, the contractor guarantees that each turbine section will pass its reliability tests by specified dates. Liquidated damages will be payable by the contractor if the specified dates are not met. After practical completion, a five year warranty period applies under which the contractor guarantees that the average total measured power output is not less than 95% of the total warranted power output and that the average availability is not less than 97% of the guaranteed availability (or 90% for the first three months), save that the availability guarantee does not apply to the extent that the unavailability arises from the following exceptions: force majeure, unavailability of the power collection systems or scheduled maintenance. During the warranty period the contractor must rectify defects in the Alinta Wind Farm at its own cost except to the extent that they arise from force majeure or WWP s wrongful act or omission. a3.2.2 service & maintenance agreement WWP has also entered into a service and maintenance agreement with NEG Micon Australia under which NEG Micon Australia must perform all maintenance and operational activities to optimise net electrical output, optimise the useful life of the wind generation facility and minimise downtime and disruption and maintain the wind generation facility in a good, workmanlike, commercially reasonable and efficient manner. The term of this agreement is 5 years following which the care and control of the wind generation facility will be passed to WWP. WWP may terminate the agreement by giving 30 days notice (or such shorter period necessary to avoid a material adverse affect) if NEG Micon Australia breaches a material obligation, is insolvent or fails to achieve the availability guarantee. a3.2.3 Vestas guarantee Vestas Wind Systems A/S ( Vestas ), a company incorporated in Denmark, guarantees the performance of all obligations, liabilities and duties (including any obligation to pay money) of its subsidiary NEG Micon Australia with respect to the construction contract and the service and maintenance contract under separate Guarantees. Vestas also covenants to perform or cause to be performed all obligations of NEG Micon Australia under or in connection with the construction contract and the service and maintenance agreement. a3.2.4 power purchase agreement WWP has entered into a power purchase agreement with Alinta Sales Limited (ACN ) ( Alinta Sales ) under which WWP sells all electricity generated at the Alinta Wind Farm to Alinta Sales. The term of the agreement expires 20 years after the earlier of commencement of commercial operations and 31 December If WWP does not supply the minimum contracted quantity of electricity, commencing from the target commercial operations date, it must pay in accordance with an agreed schedule Alinta Sales s costs and expenses of acquiring alternative supply. WWP retains rights to any carbon credits or related units created as a result of the Alinta Wind Farm s operation. If WWP commits a default which is not remedied within the time allowed (not less than 21 days for financial defaults and not less than 28 days for other defaults), Alinta Sales may terminate the agreement if the default has a material adverse effect on the rights of Alinta Sales (save that if the default is a failure to meet a minimum sale obligation, Alinta Sales s only recourse is to a bank guarantee provided by WWP). If Alinta Sales commits such a default, WWP may interrupt or limit electricity supply, disconnect the Alinta Wind Farm from the interconnection system or, if the default has a material adverse effect on the rights of WWP, terminate the agreement. The obligations of Alinta Sales under the agreement are guaranteed by its parent company Alinta Limited (ABN ). a3.2.5 renewable energy certificates purchase agreement with alinta sales WWP has entered into an agreement with Alinta Sales under which WWP has agreed to sell a certain number of renewable energy certificates in each year of the term of the agreement following the earlier of the commissioning of the wind generation facility and 31 December

207 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT The initial term of the agreement is ten years, with Alinta Sales having an option to extend the term for a further period of five years. The number of renewable energy certificates to be sold each year increases in each year after the first two years until the 10th year, after which it will stay constant for each of the following five years if Alinta Sales exercises its option to extend the term. Sales are to be made at the end of each calendar quarter of each year, with equal numbers of renewable energy certificates being sold in each quarter of the relevant year. The price of renewable energy certificates is escalated each year after 30 June 2006 by any percentage rise in the most recent March calendar quarter consumer price index over the consumer price index for the March 2005 calendar quarter. The term of the agreement during any extension following the exercise of Alinta Sales s option will terminate if and when the Renewable Energy (Electricity) Act 2000 (Cth) ( REC Act ) ceases to require the surrender of renewable energy certificates in respect of sales of energy, although the parties agree that if the scheme under the REC Act is replaced by another renewable energy production programme, the parties will use their best endeavours through good faith negotiations to agree changes to the agreement with a view to maintaining each party in the nearest equivalent position in relation to the other. If a party commits: a default which is reasonably capable of remedy and which is not remedied within 21 days (for financial defaults) or 28 days (for other defaults) after the party receives notice of the breach; or a default which is not reasonably capable of remedy and 21 days passes after the party receives notice of the breach, then the non-defaulting party may: (if it is WWP) revise the frequency of the rendering and payment of invoices; or (if it is WWP) interrupt or limit the supply of renewable energy certificates ; or (if it is either party) if the default has a material adverse effect on the rights on the non-defaulting party, terminate the agreement. a3.2.6 renewable energy certificates purchase agreement with agl electricity WWP has entered into an agreement with AGL Electricity Limited (ACN ) ( AGL Electricity ) under which WWP has agreed to sell a number of renewable energy certificates for each calendar quarter and for each year of the term of the agreement, commencing with the calendar quarter 1 July 2005 to 30 September The agreement is subject to the wind generation facility being substantially complete, at least half the proposed 54 turbines producing electricity and delivering it to the network, and WWP being entitled to create or obtain renewable energy certificates in relation to that electricity. The initial term of the agreement is ten years and three months with each party having an option to extend the term for a further period of five years. The number of renewable energy certificates to be sold for each calendar quarter and each year fluctuates, and in each calendar quarter, sales must be between an agreed maximum volume and an agreed minimum volume, with an ability for WWP to make up any shortfall in the subsequent quarters of the same calendar year. However, in each such year WWP must sell a required volume of renewable energy certificates to AGL Electricity, being the greater of (a) total production of renewable energy certificates from the wind generation facility in the year less the number sold to Alinta Sales under the contract between it and WWP and (b) the aggregate of the agreed minimum volume for each calendar quarter in the year, except that the required volume cannot in any event be greater than the aggregate of the agreed maximum volume for each calendar quarter in the year. Sales are to be made at the end of each quarter of each year. If WWP fails to supply the required volume in any year, it can purchase renewable energy certificates from a third party where they are not derived from generators using wood waste as a fuel source but are from a source that is accredited as a Green Power generator with the National Green Power Accreditation Program ( NGPAP ). 205

208 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS Alternatively, so long as AGL Electricity is not in payment default, WWP must pay liquidated damages to AGL Electricity, being the difference between (a) the costs, increased for the payment of corporate income tax, of paying the relevant rate of charge under the REC Act for a renewable energy certificate and (b) the price for a renewable energy certificate under the agreement for the relevant calendar year, and multiplying that difference by the number in the shortfall. The price of renewable energy certificates for sales up to 31 December 2005 is escalated each year during the initial term by an agreed amount. During any extension of the initial term, different pricing applies depending on which party exercises its option, although there is an agreed escalation of the price each year. A party can terminate the agreement if the other party has: suffered an insolvency event; or breached an obligation which remains unremedied for 10 business days (in the case of a financial default) or 28 business days (in the case of any other material default) after receiving notice of the breach. a3.2.7 transmission connection agreement Western Power Corporation ( Western Power ) and WWP have entered into a transmission connection agreement which provides for the connection of the Alinta Wind Farm to Western Power s transmission system. The agreement continues for a term of 31 years from the date of execution or until WWP enters into a Network Access Agreement in relation to the Alinta Wind Farm, whichever is the earlier. The obligations of Western Power and WWP under the agreement are conditional upon each of the conditions precedent being satisfied. Western Power has confirmed that the conditions precedent have been satisfied. Under the agreement, WWP must construct the wind generation facility, establish and maintain a transmission connection entry point and operate the wind generation facility to generate electricity and transfer that electricity to Western Power s transmission network, all in accordance with the relevant standards and codes referred to in the agreement. Western Power must permit the connection and the transfer of electricity from the wind generation facility to its transmission network. Western Power must also maintain the transmission network to enable the transmission network to receive electricity from the wind generation facility and enhance, augment and upgrade the transmission network (for which WWP must make a fixed capital contribution). WWP does not acquire any right, title or interest in Western Power s transmission network or any of the works conducted by Western Power required under the agreement. Western Power may interrupt or curtail the transfer of electricity to carry out planned augmentation and planned or unplanned maintenance, testing or repair, in the event of breakdown or damage to the transmission network or if a force majeure event occurs which affects the ability to transfer electricity. If WWP is in default under the agreement, Western Power may disconnect the transmission connection whilst the default is continuing, and/or terminate the agreement if the default has not been remedied within 20 business days after notice of the default has been given. WWP will be in default under the agreement if it defaults in the due and punctual payment of amounts payable under the agreement or performance of its obligations under the agreement and such default is not remedied within 10 business days; if WWP becomes insolvent; if any event occurs which is reasonably likely to jeopardise the ability of WWP to meet its obligations under the agreement; or if WWP is found to be materially in breach of any warranty given to Western Power. The maximum liability of Western Power to WWP under the agreement is limited. The maximum liability of WWP to Western Power in respect of indemnities given under the agreement is limited. Each amount of maximum liability is escalated annually by reference to the consumer price index. a3.2.8 land leases WWP entered into separate leases with 7 land owners in respect of the Alinta Wind Farm. All the leases have been registered at the Department of Land Information, Western Australia. The leases are each granted for a 25-year term, commencing on 30 August 2004, plus a 5-year option to extend at the option of WWP. All leases, except for one, are over the whole of the land comprising the relevant title, with a licence back to the lessor, for farming activities. The exception is a lease granted over portion of the title, and is granted for the purpose of installing, repairing and maintaining a wind forecasting meteorological mast, and no turbines are to be installed on it. 206

209 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT While WWP is entitled to install the turbines at any location on the leased land, and there is no limit to the number of wind turbines that may be constructed on the land, as part of the noise agreement WWP agrees that the location of the wind farm turbines will be substantially in accordance with a layout map attached to the lease. WWP may install and maintain wires, pipes, cables and other equipment to pass services through and to and from the leased area. However, the exercise of these rights is subject to any existing registered rights. A party may terminate a lease if there is an ongoing failure to pay any payment required to be made under the lease or to comply with any material term of the lease, and WWP is given a cure period (which is usually 90 days but may be longer depending on the default) to remedy any default. a3.2.9 easement access agreement Pursuant to the Easement Access Agreement, Alinta Gas Networks Pty Limited (ABN ) ( AlintaGas ) has agreed to permit WWP to enter the land the subject of the easement, for the purpose of installing, constructing and operating the wind generation facility. In exercising certain rights under the agreement to access and, in particular, undertake works on the easement area, WWP must give AlintaGas prior notice and comply with a number of prescribed conditions. a debt facilities agreement In August 2004, WWP entered into a Facilities and Subscription Agreement ( Facilities Agreement ) with BNP PARIBAS (ABN ) ( BNP PARIBAS ) and Commonwealth Bank of Australia (ABN ) ( CBA ) (each as a Joint Lead Arranger and a Participant) ( Project Lenders ) under which the following senior ranking debt facilities were made available to WWP to finance the Alinta Wind Farm project: Construction Debt Facility for the purpose of financing the construction and development costs of the wind farm project. The Construction Debt Facility is available to be drawn down from the date of financial close until the conversion date; the maximum amount available is $206,016,000. Term Debt Facility. On the conversion date, the amount outstanding under the Construction Debt Facility will be partly repaid from equity contributions and the remainder converted to the Term Debt Facility. The maximum amount available under this debt facility is in the amount of $169,149,820. The debt facility will be partially repaid over 13 years with a final bullet repayment. Interest only will be payable for the first two years after the conversion date; A small Working Capital Facility is provided as Lender during the first 5 years of operations. A Documentary Credit Facility is provided for the period commencing on financial close and ending on the final repayment date (being 31 December 2018). The documentary credits secure payment obligations to Alinta Sales under the Power Purchase Agreement. Each documentary credit must expire on or before 31 December Margins and fees (including commitment fees, documentary credit fees and working capital facility usage fees) usual for facilities of this kind are payable in respect of the debt facilities. The Facilities Agreement contains representations and warranties and undertakings usual for debt facilities of this kind. There are restrictions on changes in the ownership structure of the wind farm project and such changes may require the consent of the Project Lenders. There are also strict provisions which WWP must comply with as borrower including Time and Cost to Complete Tests which must be met to permit drawdown from the Construction Facility. The debt facilities are subject to events of default, also usual for debt facilities of this kind, which would enable the Project Lenders to accelerate the repayment of the debt facilities, cancel their commitments to lend, enforce their security and appoint consultants to investigate WWP and the wind farm project. The Project Lenders hold a comprehensive security package over WWP s assets in support of the obligations of WWP under the Facilities Agreement and interest rate hedge agreements. a Construction management services agreement WWP has entered into a Construction Management Services Agreement with NP Operations Pty Ltd (ACN ) ( NP Operations ) under which management fees are payable. Under the agreement, NP Operations must provide services to WWP in connection with the wind farm project during the construction and startup periods. The services involve management of the entire construction process 207

210 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS a operation management services agreement WWP has entered into a Management Services Agreement with Renewable Power Ventures Pty Ltd ACN ( RPV ) under which management fees are payable. Under the agreement, RPV must provide services to WWP in connection with the wind farm project during the operation period, These services are management of the wind farm project generally (other than the obligations of NEG Micon Australia under the Service and Maintenance Agreement) including providing advice and expertise in connection with the management and general administration of the wind farm project. WWP has the right to terminate the contract for breach and by written notice. a3.3 olivo portfolio Wind FarM project agreements a3.3.1 share purchase agreement Under the share purchase agreement dated 20 December 2004 ( olivo share purchase agreement ), Olivento S.L. (a Spanish subsidiary of BBWPL ( olivento )), agrees to purchase from Gamesa Energía, SAU ( gamesa ), and Gamesa agrees to transfer to Olivento, all of the shares in each of the following project companies: Sistemas Energeticos Opinen S.A. (La Muela Norte opinen ), Sistemas Energeticos Sierra del Trigo S.A. ( sdt ), Sistemas Energeticos Montes de Leon S.A. (El Redondal Mdl ), Sistemas Energeticos Serra da Loba S.A. ( sdl ), Sistemas Energeticos del Sardon S.A. ( sardon ) and Sistemas Energeticos Villarrubia S.A. (La Plata Villarrubia ) (each an olivo Wind Farm ). Each Olivo Wind Farm shall be transferred to Olivento by Gamesa by entering into a purchase deed, a pro forma copy of which is annexed to the Olivo Share Purchase Agreement. Opinen and SDT (on 23 December 2004) as well as Villarrubia (on 30 June 2005) have been purchased and transferred to Olivento under the share purchase agreement and each of MDL, SDL and Sardon will be transferred after each Wind Farm receives all its permits, licences and authorisations. This was required to have occurred on or before 30 June 2005, with an option to extend by six months which has been granted by Olivento for MDL, SDL and Sardon. The price to be paid for each Olivo Wind Farm and relevant adjustments are agreed in the Share Purchase Agreement. If Olivento chooses not to purchase any of the remaining Olivo Wind Farms or is unable to purchase due to breach of its obligations, Gamesa may demand fulfilment of the contract or terminate the sale of the affected Olivo Wind Farm or Olivo Wind Farms and claim a penalty from Olivento unless the failure to comply is due to an exceptional circumstance that could not be foreseen by Olivento and which affects the international or Spanish financial market. For the Olivo Wind Farms not purchased prior to 30 June 2005 due to Gamesa s failure to fulfil its obligations, then Gamesa is obliged to offer a replacement wind farm (if available) to Olivento at a price calculated in accordance with the Share Purchase Agreement. Olivento has granted an extension of six months for the sale of MDL, SDL and Sardon. At the end of this six months extension period, Olivento can terminate the Share Purchase Agreement in relation to the affected Olivo Wind Farm or Olivo Wind Farms. In addition, Olivento will have a 24 month right of first refusal to purchase the terminated Olivo Wind Farm(s). If Gamesa does not sell a Olivo Wind Farm to Olivento despite fulfilling all obligations then Olivento may demand fulfilment of the contract or seek termination of the contract and be entitled to a penalty for each Olivo Wind Farm not transferred. In addition to the usual representations and warranties, Gamesa represents and guarantees that all the Olivo Wind Farms will have, at the date of transfer to Olivento, all necessary permits, licences and authorisations necessary to carry out the construction and operation of the respective Olivo Wind Farm. Gamesa agrees to compensate Olivento and the relevant Olivo Wind Farm for all loss as a result of any inaccuracy in respect of its representations and warranties. The agreement is governed by Spanish law. Ancillary agreements to Share Purchase Agreement The agreements summarised in (a) to (g) inclusive below are pro forma agreements which are appendices to the Share Purchase Agreement and have been, or will be, entered into with respect to each Olivo Wind Farm on the dates they are transferred to Olivento. 208

211 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT a) Share sale and purchase deed Olivento and Gamesa enter into a pro forma share sale and purchase deed for each Olivo Wind Farm. On this basis, each Olivo Wind Farm is transferred by Gamesa to Olivento by means of public deed based on this pro forma deed. The share sale and purchase deed sets out the agreed price and provides for each Olivo Wind Farm to enter into the pro forma agreements summarised below and repeats the representations and warranties set out in the sale and purchase agreement. In relation only to Villarrubia, Olivento has the right to withhold a portion of the payment price if any power limitations apply to that Olivo Wind Farm. The agreement is governed by Spanish law and the place of arbitration is Paris. b) Commercial loan agreement The commercial loan agreement is between Gamesa as lender and each Olivo Wind Farm as borrower for the purpose of cancelling all other debts of the Olivo Wind Farm and consolidating them with Gamesa. The commercial loan is repaid on the date of the acquisition of the Olivo Wind Farm by Olivento. However Gamesa has the right to demand full payment of the loan at any time. The agreement is governed by Spanish law and subject to the courts of Bilbao. c) Agreement for representation as retail agent in the electricity market Under this agreement Wind To Market SA ( W2M ) an electricity marketer, will represent the Olivo Wind Farm in dealings with the Spanish market operator (OMEL) and electricity buyers and will submit bids to sell the electricity production from the Olivo Wind Farm on the Olivo Wind Farm s behalf. For its agency services, the Olivo Wind Farm will pay W2M an amount calculated by reference to each MWh of electricity from the wind farm sold in the market less deviations costs in accordance with market rules. The market operator will pay the Olivo Wind Farm directly for the electricity sales from the Olivo Wind Farm that are the result of bids made by W2M on the Olivo Wind Farm s behalf. The Olivo Wind Farm makes certain undertakings to W2M including giving W2M estimates and production plans and maintaining the Olivo Wind Farm s connection to the distribution network. The agreement will be terminated by expiry of the term of the agreement, by mutual written agreement or by a breach of one of the parties of their obligations under the agreement. The agreement is governed by Spanish law and subject to the jurisdiction of the courts of Madrid. d) Services agreements In the services agreement, Gamesa Energía Renovables, S.A. (a member of the Gamesa group) agrees to provide management and administrative services for each Olivo Wind Farm including sending W2M the results of readings at metering points corresponding to the facilities, invoicing, preparation of monthly reports, drafting of any agreements and preparation of other documents related to the management and administration of the Olivo Wind Farm. The agreement will have an initial term of two years and can be extended by agreement between the parties. Either of the parties may terminate the agreement by written notice to the other party. As payment for its services, Gamesa Energía Renovables, S.A. will receive a fee calculated on monthly turnover that the Olivo Wind Farm obtains from the sale of electricity. e) Contract for Operation and Full Maintenance of the wind farm Each Olivo Wind Farm will enter into an agreement for the operation and full maintenance of the Olivo Wind Farm with Gamesa Eólica, S.A. (a member of the Gamesa group) ( Gamesa Eólica ). Under the agreement, Gamesa will provide labour, spare parts, consumables and auxiliary means of transport and lifting. Gamesa Eólica warrants the quality of its repairs excluding, among others, military operations, insurrection, nuclear energy, wilful misconduct, rust, natural disasters and fines or sanctions which are not due to Gamesa Eólica s actions. 209

212 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS Gamesa Eólica warrants that it will cover loss of income during a period of damage repair staring from the 10th day and agrees to take out all risk insurance covering property damage, machinery breakdown and business interruption in respect of the wind farm, in addition to third party insurance. Gamesa Eólica agrees that this insurance does not prejudice its responsibility under the agreement. Gamesa Eólica warrants that the average annual availability of the wind farm including electrical infrastructure will be 96.5%. Damages are payable if the level of availability is below a specified threshold; a bonus is payable if availability is above a specified threshold. After expiry of the power curve warranty under the turnkey contract, Gamesa Eólica warrants that the annual power produced by the wind turbines will be the level agreed in the turnkey contract (turbines) for a period of 3 years. The power curve warranty will expire if after that period of time no liquidated damages are paid as a consequence of the warranty even if the contract is extended. Gamesa Eólica also warrants as to the noise level of the wind turbine generators. Liability for breaches of the availability and power curve warranties are limited. The agreement has an initial term of 5 years and can be extended by the Olivo Wind Farm for an additional 5 years. Under this agreement, each party may, in certain circumstances, terminate by serving written notice to the other. The agreement is governed by Spanish law and subject to the juridiction of the courts of Madrid. f) Complementary agreement to the turnkey agreement Each Olivo Wind Farm enters into the pro forma complementary agreement to the turnkey agreement for the supply, setup and start-up of the wind turbines of a wind farm with Gamesa, which gives them the benefit of the following turbine warranties (as amended): for the first 5 years of operation, an availability guarantee of 97%; for the first 5 years of operation, a power curve warranty of 95% with capped liquidated damages For the first 5 years of operation, Gamesa s liability to pay liquidated damages under this agreement is capped. g) Complementary agreement to the turnkey agreement (excluding wind turbines) Each Olivo Wind Farm will enter into a pro forma complementary agreement to the turnkey agreement for the construction of facilities (excluding wind turbines) with Gamesa Energía Servicios, S.A. (a member of the Gamesa group). In particular, this agreement obliges Gamesa to install auxiliary systems that allow the wind farms to operate in such a way as to obtain a reactive energy supplement pursuant to the Special Regime in Spain. Gamesa Energía Servicios, S.A. guarantees that the Olivo Wind Farm will be equipped with energy measurement systems that comply with regulations in relation to technical and safety specification a3.3.2 Construction agreements Each respective Olivo Wind Farm enters into installation and start-up agreement with Gamesa Energía Servicios S.A. (the Contractor ) for the wind farm. There are typically two separate and complementary turnkey agreements: a) Turnkey agreements for the supply, assembly and start-up of wind turbines These standard form agreements are for the sale of wind turbines which includes transport, assembly, testing and start-up. These turnkey agreements are entered into by the relevant Olivo Wind Farm and Gamesa Eólica, S.A. The agreements set out the terms and conditions governing: (i) the sale of the wind turbines, (ii) the connected civil works to be carried out for their installation and start-up and (iii) the different guarantees established for the wind turbines and connected installations which have been amended by the agreements in A3.3.1(f) above. 210

213 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT b) Turnkey agreements for the civil works and related infrastructure These agreements are for the construction of the non-turbine infrastructure installations, including, in most cases, the laying of electrical cables. These agreements provide that, prior to the installation of the wind turbines, Gamesa carry out the supply, assembly, testing and start-up of the electrical installations as well as the civil works of the wind farms. The Opinen, SDT, and SDL contracts also include the laying of the electrical cable between the wind farm s substation and the connection point to the electricity grid. The supply, testing and start-up of the wind turbines of the wind farms are not included in these agreements which have been amended by the agreements in A3.3.1(g) above. a3.3.3 power sales agreements Under these agreements, Opinen, SDT, MDL and Villarubia agrees to sell to the local distribution company electricity generated by the relevant wind farm. These agreements have a duration of five years from the date of execution, automatically renewed for successive annual periods if neither of the parties gives written notice of their intention to terminate the agreement. According to Royal Decree ( RD ) 2818/1998 and RD 436/2004, such agreements have a minimum term of five years, and in the event of termination, the owner of the wind farm is entitled to sign new agreements with the closest distribution company for a further minimum term of five years. These five year renewal periods may continue for as long as the wind farm is in operation. Therefore, so long as the wind farms remain in compliance with the relevant laws, they are always able to sell their output. The remuneration provisions of the power sale agreements are governed by the legal regimes established in either of such Royal Decrees as follows: The Opinen and SDT contracts with the distributor are subject to RD 436/2004. Pursuant to the Second Transitory provision of RD 436/2004, before they opted to transfer to RD 436/2004, they qualified for an interim transitory regime from 1 April 2004 to 31 December Under this regime, these wind farms have sold their electricity to the distribution company, receiving the sum of the final hourly generation market price plus an additional premium, which has been updated annually pursuant to the provisions of Second Temporary Provision of Royal Decree 436/2004. Furthermore they also received the reactive energy bonus where the capacity factor of the electricity transferred to the distribution company was greater than 0.9 (if it was lower then there was a discount). As of 1 January 2005, they were obliged to notify the distribution company of the forecast of electricity to be sold into the grid and were subject to any deviation penalties. Because these wind farms transferred to RD 436/2004 in 2005, they are able to continue operating with the bonus for reactive energy regime until 1 January The Villarrubia contract, which are more recent, are subject to RD 436/2004. This RD requires that the contract with the distributor includes whether the owner of the wind farm decides to sell its energy at the regulated tariff or sell it freely on the market. Currently the contract with the distributor for Villarubia reflects the market option. a3.3.4 energy supply agreements Under these agreements, the Olivo Wind Farm enters into supply agreements for the internal consumption of electricity by the wind farm and its related installations during times when the energy produced by the wind farm itself is not able to meet its own internal requirements. a3.3.5 Market operator (omel) agreements Each Olivo Wind Farm is required to enter into an agreement with OMEL in order to access the market and appoint W2M (see 1.3 above) as its agent in the electricity market. a3.3.6 grid Connection agreements Wind farms may be connected to the grid either through the distribution company with whom they have the Power Sales Agreements (as with SDT and Villarrubia) or they may be connected to the higher voltage transmission grid (as with Opinen). The Power Sales Agreement typically contains the grid connection agreement within it. When wind farms are connected directly to the transmission grid there is a need for an additional agreement with the transmission grid and grid operator, Red Eléctrica. This agreement is in a standard form and ongoing grid access rights for wind farms are also fully protected in this agreement. 211

214 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS a3.3.7 agreement for the connection and use of electrical infrastructures for energy discharge In Spain it is common for owners of adjacent wind farms to construct and operate shared electrical infrastructure in order to secure a connection to the distribution network of the local utility or Red Eléctrica s transmission grid. This is the case with the operating wind farms of Opinen and MDL and is also proposed for SDL and El Sardon. Where assets are shared, it is necessary for the terms and conditions for ownership and capacity rights to be established through commercial arrangements between the relevant parties. Such arrangements have been entered into for Opinen and MDL. In both cases the parties have agreed to share the electrical infrastructure by means of a Spanish legal arrangement called a community of goods ( comunidad de bienes ). Gamesa Energía SAU has also entered into arrangements with Opinen under which Gamesa Energía SAU retains the right, over a 5-year period, to utilise surplus capacity on the electrical infrastructure for the connection of additional wind farm generation. These arrangements also provide that if the infrastructure assets are adopted by the local utility within the next 10 years, any rights to revenues from such sale are assigned to Gamesa Energía SAU Similar arrangements have also been executed by Gamesa Energía SAU in relation to SDT and MDL. a3.3.8 reactive Compensation agreements As mentioned in point 1.7, Gamesa undertakes to install auxiliary equipment which enable each Olivo Wind Farm to maximise its reactive power revenue. The installation of such auxiliary equipment is meant to take place after Olivento s acquisition of each Olivo Wind Farm. Gamesa nonetheless undertakes to: (i) compensate the Olivo Wind Farm for the loss of reactive power revenue; and (ii) guarantee that, post installation of the auxiliary equipment, the Olivo Wind Farm will receive the maximum reactive power revenue applicable. a3.3.9 land agreements The Olivo Wind Farms are, or will be, a party to a large number of land agreements for the wind farms and related infrastructure. These land agreements fall into one of the following categories: a) Administrative concessions/authorisations The Olivo Wind Farm is granted the right to use a given plot of land of public domain during a specific term and for a specific purpose/activity, which usually is considered to be of public interest. This category of land is generally used by the Olivo Wind Farms for plots of land where the wind turbines and related infrastructure are installed. A specific covenant requires the Olivo Wind Farm to remove the installations after expiry of the concession. b) Lease Agreements The Olivo Wind Farm is permitted to use a given plot of land in exchange for payment of a monthly or annual rent. c) Public Deed of Sale and Purchase The Olivo Wind Farm acquires freehold ownership of the land. d) Easements of way The Olivo Wind Farm is entitled to (i) access or cross a specific plot of land owned by third parties, and/or (ii) install the necessary electricity or communication cables/wires for the corresponding high voltage lines of the Olivo Wind Farm. e) Other agreements These may include (i) an agreement of compatibility between the mining and the wind farming activities whereby a company holding certain mining rights over a specific plot undertakes not to interfere with the Olivo Wind Farm; (ii) an agreement of assignment of use granting a surface right; and (iii) agreements with entities of public ownership authorising (or notifying the authorisation of) high voltage lines across certain roads or railways. f) Surface rights Surface rights by virtue of which the Olivo Wind Farm is granted a right to use a plot of land and to build any installation/ construction pursuant to which the holder of the surface right has the ownership of the installations while the freehold owner continues to own the underlying land. 212

215 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT g) Minutes of mandatory occupation The Olivo Wind Farm through expropriation proceedings acquires the freehold or a right of easement of way over a given plot of land owned by third parties. a long term Facility agreement On 23 December 2004, Olivento, S.L. entered into a Long Term Facility Agreement with Dexia Credit Local, Dexia Sabadell Banco Local, S.A. and The Bank Of Scotland ( Lenders ) for the Lenders to provide to Olivento long term debt facilities to the maximum principal amount of 7165,000,000 ( Long Term Facilities ). As part of the Long Term Facilities, the Lenders agreed to make available a working capital facility, working capital guarantee facility and a VAT loan to the Olivo Wind Farms (described below). Amounts under the Long Term Facilities may be drawn in a maximum of 6 drawings for the purposes of acquiring the entire share capital of each Olivo Wind Farm on the date of the drawing and on-lending to each Olivo Wind Farm under an inter-company loan to refinance existing debt. Principal repayments must be made semi-annually until The rate of interest on the long term facility is based on EURIBOR rates. Interest periods prior to 31 December 2005 are 3 months and 6 months after 31 December Interest accrues on a daily basis. Interest rate swaps transactions have been entered into by Olivento with an effective date from 30 June 2005 until 31 December Olivento is the fixed rate payer. The agreement contemplates a merger between Olivento and the Olivo Wind Farms following which the working capital and VAT facilities will be available to Olivento. Prepayments of the Long Term Facility are mandatory to the extent that any amounts are received from Gamesa, the insurer or any public authority for loss exceeding the actual replacement or reinstatement of the property or the actual loss or contingency, or for the entire amount, where the indemnification or compensation amounts exceed 720,000,000 unless the Lenders consent is obtained or Olivento is obliged to apply those proceeds in some other way. Mandatory prepayment obligations also apply in respect of any amounts received from insurers in respect of insured property for property damages losses. Olivento makes representations and warranties in respect of itself and each of the Olivo Wind Farms (once they are acquired) which are usual for debt facilities of this kind. If the merger has not occurred after 12 months after financial close, then the interest rate increases and similarly if the merger has not occurred after 18 months after financial close then on that date the interest rate increases again. After the merger these additional rates are rescinded. The Lenders have standard pledges over the assets of the companies and their assets. a Working Capital Facility agreements (olivo Wind Farms) On 23 December 2004 Opinen and SDT entered into separate working capital facility agreements with Dexia Sabadell. Each Olivo Wind Farm will enter into agreements on the same terms. The working capital facility agreements include facilities for three guarantees in favour of OMEL (Spanish market operator) and W2M. The working capital facility agreements contain the usual representations and warranties common to facilities of this kind. This includes a representation that all material permits, approvals, consents and registrations necessary have been obtained and in force. The rate of interest on the working capital facility is based on EURIBOR with interest accruing on a daily basis. The agreements are also subject to accelerated termination which would enable Dexia Sabadell to demand early repayment of all drawdowns, release all guarantees issued and exercise any security rights. The circumstances under which the lender may totally or partially terminate an agreement in advance are the usual events of default for a facility of this type including a breach of representations and warranties. The final maturity date is 31 December 2020 although there are provisions for it to be terminated earlier. The working capital lender has standard pledges over the assets of the companies and their assets. 213

216 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS a Working Capital Facility agreement (olivento) Olivento entered into a working capital facility agreement with Dexia on 23 December 2004 which will become effective upon registration at the Mercantile Registry of the merger between Olivento and all the Olivo Wind Farms. The rate of interest on the working capital facility is EURIBOR based with interest accruing on a daily basis. As this agreement effectively consolidates all the outstanding working capital facility agreements (Olivo Wind Farms), the underlying terms and conditions of this agreement are largely the same as the working capital facilities agreements (Olivo Wind Farms). Under the agreement Olivento may grant guarantees necessary for the operation of the wind farms as a merged entity. Risks associated with unforeseeable changes in circumstances will be assumed by Olivento so that Dexia Sabadell will, to the extent it is possible, continue to receive the same returns as before the change occurred. Conversely, Dexia Sabadell will have to mitigate losses where possible and put in place the most reasonable mechanisms to transfer back to Olivento any favourable advantages resulting from changes in circumstances. The final maturity date is 31 December 2020 although there are provisions for it to be terminated earlier. The working capital facility provider has standard pledges over the assets of the companies and their assets. a Vat loan agreement Each Olivo Wind Farm (with the exception of Opinen and SDT for which construction was completed at the time of the Share Purchase Agreement) will, if necessary, enter into a VAT Loan Agreement with Dexia Credit Local at the time of that wind farm being acquired for the purpose of obtaining financing to fund the payment of taxes in relation to the construction of relevant wind farm. The Olivo Wind Farms will be obligated to prepay an amount equal to any VAT refund received from the Public Treasury, an amount equal to any VAT off-set made pursuant to any VAT return and/or amounts disbursed under the VAT loan with the amounts deposited in the VAT account from the Olivo Wind Farm s project account. The representations and warranties given by each Olivo Wind Farm are identical to the representations and warranties in the working capital facility agreements. In addition, there are VAT specific representations and warranties. The obligations of the Olivo Wind Farms are identical to the obligations in the working capital facility agreement. There are also additional undertakings made with respect to VAT. The VAT Loan Agreement is subject to accelerated termination, upon which the Dexia Credit may demand early repayment of the outstanding balance under the VAT loan and any other related amounts due to events including a default in payment by the Olivo Wind Farm including interest or other items, a default of the long term facility agreement and a default of the working capital agreement of the Olivo Wind Farm. a3.4 niederrhein Wind FarM project agreements a3.4.1 limited partnership Niederrhein Project Company, Windpark Niederrhein GmbH & Co kg, is a limited partnership under German law. The partnership is controlled by German statute and partnership law ( HGB Commercial Code ). A BBWP subsidiary is the Limited Partner (99% ownership) and a subsidiary of B&B Germany (Babcock & Brown Windpark Verwaltungs GmbH) is the General Partner (1% ownership). By statute the General Partner is vested with administrative management of the partnership s business. The Limited Partner can object to certain administrative management decisions (if those are not in the ordinary course of business). The Limited Partner retains economic control and management of the business with respect to investment, divestment and strategy. This reflects the general concept of (i) the Limited Partner having an economic participation (via limited partnership shares) and (ii) the General Partner being vested with management rights. In the case of breach of duties by the General Partner, the Limited Partner can take action against the General Partner. As regards liability for the partnership s obligations, the Limited Partner s liability is limited (as evidenced in the commercial register) to its limited partnership shares, the General Partner s liability is unlimited. 214

217 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT a3.4.2 general Contractor agreement Niederrhein Project Company and Nordex entered into a general contractor agreement for the turnkey construction of the Niederrhein wind farm. Nordex s scope of supply and services includes the ready-to-use construction of the 13 wind turbines and the turnkey construction of all peripheral facilities that are necessary to connect the wind farm to the public supply network. Niederrhein Project Company has agreed to pay a fixed price that includes all costs associated with the turnkey construction of the Niederrhein wind farm. The construction term is six months. Nordex is required to have issued an advance payment guarantee and a guarantee for warranty obligations on terms customary in the market. Nordex guarantees that: Niederrhein wind farm will be complete and free of defects the requirements in the building permits and certain performance parameters of the wind turbines will be complied with and fulfilled (including a 95% guarantee of the performance curve ( Leistungskennlinie )) an average annual technical availability of the wind turbines of 98%. Nordex also guarantees observance of certain sound power levels as well as meeting the electrical requirements of the local utility companies. The warranty period shall be five years, commencing from the successful conclusion of the overall acceptance test. Nordex must remedy any defects and Niederrhein Project Company shall have a claim for damages if the performance parameters are less than those guaranteed. If certain minimum values are not met, the Niederrhein Project Company shall also have a right to rescind the contract. Nordex must pay liquidated damages for delays of more than 1 month. Nordex s liability to pay damages under the general contract or agreement is capped. a3.4.3 Maintenance contract Under the maintenance contract, Nordex is responsible for the maintenance and upkeep of the wind generators, including tower, turbines, transformers and remote surveillance system. Such maintenance work shall be performed in regular intervals of six months. The maintenance services are set forth in detail in the operating and maintenance manuals and must comply with generally approved engineering rules applicable from time to time. Nordex is also required to document the operations of the Niederrhein wind farm and to report on such operations on a regular basis. Niederrhein Project Company pays an annual fee to Nordex for these services. Repairs and maintenance work are at Nordex s cost if they are based on defects that are still under warranty according to the general contractor agreement. Any other maintenance work or repairs are to be paid for separately by the Niederrhein Project Company provided that such maintenance work or repairs exceed a threshold of 71, per wind turbine during each business year. The term of the maintenance contract is 10 years. During that term, the maintenance contract may only be terminated for cause. The terminating party shall have the right to claim damages. Niederrhein Project Company s liability is capped except where the breach was intentional. Nordex s liability under the maintenance contract is limited to the coverage and scope of the business liability insurance or, if such insurance does not apply, to a fixed amount per annum. For the period starting with the sixth business year of operations and ending with the tenth business year of operations, Nordex gives a 98% availability guarantee for the Niederrhein wind farm. a3.4.4 operating agreement Renerco and Niederrhein Project Company have entered into an operating agreement in relation to technical plant management for the Niederrhein wind farm. Renerco is required to monitor operations at the Niederrhein wind farm and to co ordinate and check all maintenance, repair and warranty work performed by Nordex. In addition, Renerco must settle possible events of damage or loss with the insurance company and undertake the invoicing of the local utility companies for generated energy. Renerco is required to submit operating logs to Niederrhein Project Company on a regular basis. The operating agreement has a term of 10 years. 215

218 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS a3.4.5 agreements with utility companies The section of the wind farm called Bocholt Liedern is to be connected to the network of Bocholter Energie- und Wasserversorgung GmbH, and the section of the wind farm called Wachtendonk is to be connected to the network of RWE Rhein-Ruhr AG. According to section 4 of the EEG, which took effect on August 1, 2004, network operators are required to connect wind power stations to their network and to accept the entire energy volume produced by such stations. This obligation applies to the network operator, whose network is technically capable of accepting such energy and is closest to the location of the wind power station. Under section 5 of the EEG, the respective network operators must pay the price stipulated by the EEG for energy produced by such wind power stations. a3.4.6 project assumption agreement and contract on the acquisition of niederrhein project Company Pursuant to the project assumption agreement, Niederrhein Project Company shall acquire from Renerco all project rights in Niederrhein wind farm, which include, in particular, the property utilisation agreements concluded with the respective owners, as well as the building permits and all pertinent plans, expert opinions and calculations. Renerco warrants that all project rights are available, that they have been effectively established, effectively transferred to Niederrehin Project Company and that they will continue to be effective. Renerco is required to compensate for loss resulting from subsequent requirements being imposed or being caused by a cancellation of the building permits, as well as for losses that might result from a change of the voltages of RWE Rhein-Ruhr AG s network. Under the contract, on the acquisition of Niederrhein Project Company Renerco shall transfer its sole limited partner s share in Niederrhein Project Company to the purchaser and warrants that the general partner of Niederrhein Project Company will be changed. Under the agreement Renerco makes representations and warranties that the Niederrhein Project Company has no liabilities that have not been disclosed to the purchaser. a3.4.7 Contracts of use (land) Niederrhein Project Company has entered into long term contracts of use with the owner of the properties upon which the wind power stations have been built. Within the framework of these contracts of use, the respective property owners grant the Niederrhein Project Company the right to build wind power stations with foundation, transformer station and transfer station on their properties. Niederrhein Project Company is granted the right to build, maintain and operate access roads to the wind power stations and lay cables on the respective properties. The contracts of use have a term of at least 20 years plus the year of commissioning. For the use of the properties, Niederrhein Project Company has to pay regular leasehold rental payments to the respective property owner. The right of Niederrhein Project Company to use the properties is secured in rem by the entry of corresponding easements. After expiry of the contractual term of the leases, Niederrhein Project Company undertakes to remove the wind power stations and the access roads in full and to restore the original condition of the property. In order to secure this dismantling obligation the project company is obliged to hand over guarantees to the property owners. These contracts of use are contracts which are typical for German wind farm projects. a3.4.8 Credit agreement Niederrhein Project Company entered into a credit agreement for 722,200, with HSH Nordbank AG kiel on 17 March Niederrhein Project Company has given various representations and warranties under the credit agreement usual for this type of credit agreement. Niederrhein Project Company is not entitled to carry out any change of shareholders without the written consent of HSH. HSH is entitled to terminate the credit agreement for cause which might exist if Niederrhein Project Company is in default with its payments or breaches any other contractual obligation. In such a case, Niederrhein Project Company is not only obliged to repay the loan but also to reimburse HSH for all costs incurred. 216

219 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT a3.5 Us Wind FarM project documents a3.5.1 sweetwater stage 1: Material Contracts (i) Limited liability company agreement of project company The limited liability company agreement ( SW1 LLC Agreement ) of Sweetwater Wind 1 LLC, a Delaware limited liability company ( SW1 ), provides for two levels of membership interests: Class A and Class B. The Class B unit holders serve as the managing members of the company. The managing members have control over and manage the affairs of the company, but the consent of the Class A unit holders is required for certain material actions to be taken by the company (such as the incurrence of debt, sale of material assets, mergers, acquisitions, sale of the company or other similar actions). Transfers of membership interests are permitted subject to (a) a right of first bid procedure for the benefit of non-transferring members, (b) a prohibition against transfers to certain disqualified transferees (such as competitors of the company), (c) prior to the Reallocation Date, transfers of Class B units require consent of a designated super-majority of the Class A units, and (d) Class A units may be transferred after 10 years (from the start of operations) if the Reallocation Date has not been reached and distributions have failed to exceed the sum of the Class B members capital contributions. A change of control must comply with the foregoing transfer restrictions, except that an event causing a change of control of a company member s parent company does not constitute a change of control. Cash is distributed first to the Class B members until they receive a return of their capital contributions, second to the Class A members until the Reallocation Date has been reached, and thereafter a designated percentage to the Class B members (approximately 80%) and to the Class A members (approximately 20%). If the Class A investors suffer losses resulting from the Class B members breach of covenants or misrepresentations under the SW1 LLC Agreement or if the Project Administrator fails to perform its obligations under applicable administration agreements, cash that would otherwise be distributed to the Class B members is diverted instead to the Class A members until the full amount of the loss is recovered. The Investment LLC that is the Class B Member in SW1 has an option to acquire the Class A interests after the Reallocation Date has been reached or after ten years. (ii) Turbine warranty agreement SW1 entered into a turbine warranty agreement with GE Wind Energy, LLC, a Delaware limited liability company ( GE Wind ). Under the agreement, GE Wind warrants that: (a) the power curve of the turbines will be 95% of the warranted power curve, (b) the turbines will operate at a minimum 95% availability and (c) the turbines will meet certain sound requirements. The warranty period begins on the date of the final turbine completion and expires five years thereafter; the warranty period may be extended an additional 24 months for serial defects. If the turbines do not meet the required power curve or availability during the warranty period, GE Wind must pay damages to SW1. GE Wind must also make the appropriate repairs or replacements if the turbines do not meet the sound level warranty. GE Wind s obligations are subject to limitation where: (x) defects are caused by incorrect installation, unauthorized alteration or improper operation or maintenance by non-affiliate third parties, (y) damage was caused by force majeure, or (z) SW1 installed improvements or equipment that must be dismantled to repair the turbine. (iii) Operation & maintenance agreement SW1 and Sweetwater Wind 2, LLC, a Delaware limited liability company ( SW2 ), have entered into an operation and maintenance agreement with GE Wind under which GE Wind must perform all maintenance and operations activities of the Sweetwater wind projects in a good, workmanlike, commercially reasonable manner in accordance with prudent industry practices. The term of this agreement ends upon the expiration of the warranty period applicable to each phase 2008 for SW1 and 2010 for SW2. A party to the operation and maintenance agreement can terminate the agreement by giving notice if the other party has: breached a material obligation (other than a payment obligation) which remains unremedied for 30 days after receiving notice of the breach; or breached a payment obligation which remains unremedied for 5 days after receiving notice of the breach; or enters into bankruptcy proceedings that are not dismissed within 60 days of the filing date. In addition, either SW1 or SW2 may terminate the agreement for convenience by giving GE Wind 180 days prior written notice and paying any amounts outstanding to GE Wind by such owner at the time of termination. 217

220 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS (iv) Guarantee General Electric International, Inc., a Delaware corporation, guarantees the performance of all obligations, liabilities and duties (including any obligation to pay money) of its subsidiary GE Wind with respect to the turbine warranty agreement. (v) Power purchase agreement SW1 is a party to a power purchase agreement with TXU Portfolio Management Company LP, a Texas limited partnership ( TXUPM ) under which SW1 sells all the electricity generated at the wind farm facility to TXUPM; SW1 has a rated capacity of 37.5MW. The initial term of the agreement expires on December 31, 2023, and each party has an option to extend the term by an additional 5 years. SW1 is required under the agreement to sell all energy, renewable energy credits and any environmental credits produced by the wind farm facility exclusively to TXUPM. TXUPM will pay SW1 monthly for all renewable energy credits and net energy produced by the wind farm facility. A range of prices are payable for energy produced depending on the quantity of energy produced by the wind farm facility during a production year. If a party has: breached a material obligation which remains unremedied for 30 days after receiving notice of the breach; or breached a payment obligation which remains unremedied for 30 days after receiving notice of the breach; or provided a false or misleading material representation which has not been corrected within 10 business days; or failed to maintain security required under the agreement which failure is not cured in 5 business days after receiving written notice; or transferred to an entity that fails to assume all the obligations of the party; or suffers an insolvency event; then the other party can terminate the agreement. If TXUPM fails to take delivery of all or part of the net energy produced (or that could be produced absent such failure), then TXUPM must pay SW1 an amount for the deficiency equal to the positive difference obtained by subtracting the market price received from the sale of the power not taken from the full price that would have been paid under the power purchase agreement. If SW1 fails to deliver to TXUPM the full amount of net energy available for delivery to the delivery point, then SW1 must pay TXUPM liquidated damages equal to the positive difference between (a) the amount that TXUPM would have paid for replacement renewable energy and (b) the amount TXUPM would owe SW1 if energy had been delivered by SW1. (vi) Interconnection (transmission connection) agreement An interconnection agreement with LCRA Transmission Services Corporation, a Texas non-profit corporation ( LCRA ), covers both the Sweetwater Wind 1 and Sweetwater Wind 2 wind farm facilities. The wind farm facility is connected by a 345kV transmission line into the ERCOT transmission system. LCRA agrees to provide transmission capability to enable SW1 and SW2 to deliver electricity to LCRA s transmission network. The agreement is based on the ERCOT standard generation interconnection agreement. Either party may terminate the interconnection agreement if the other party fails to perform any obligation under the agreement in accordance with the agreement which is not remedied within 30 days. Each of SW1 and SW2 can also terminate the interconnection agreement by giving LCRA 30 days prior written notice. (vii) Land easements SW1 is a party to 9 easements with relevant landowners of the site of the Sweetwater Wind 1 wind farm project. The initial term of each of the easements expires 40 years from the commencement of operations of the wind farm. The easements allow SW1 to erect, maintain and operate transmission facilities and wind turbines. SW1 makes certain royalty and rental payments to the landowners. 218

221 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT A non-defaulting party may terminate the agreement if: (a) the other party fails to pay amounts when due and such failure is left uncured for 30 days after written notice to the defaulting party, (b) the other party fails to perform any of the other covenants in the easement agreement and such failure is left uncured for 30 days after written notice to the defaulting party or (c) the other party enters into a bankruptcy proceeding that is not dismissed within 60 days after the filing date. a3.5.2 sweetwater stage 2: Material Contracts (i) Limited liability company agreement of project company See summary of substantially similar agreement described for SW1 above. (ii) Turbine warranty agreement See summary of substantially similar turbine warranty agreement described for SW1 above. Warranty period is through early (iii) Operation & maintenance agreement See summary of operation & maintenance agreement described for SW1 above. (iv) Guarantee General Electric Company, a New York corporation ( GE ), guarantees the performance of all obligations, liabilities and duties (including any obligation to pay money) of its subsidiary GE Wind with respect to the turbine warranty agreement. (v) Power purchase agreement SW2 has entered into a power purchase agreement with the City of Austin, a Texas home-rule municipal corporation, acting through its municipally owned electric utility, Austin Energy (the City ), under which SW 2 must sell and the City must buy all of the electricity generated at the Sweetwater Wind 2 wind farm project. Beginning on the 3rd anniversary of the commercial operation date (which occurred in February 2005), SW2 must deliver a minimum annual requirement of 75% of SW2 s net electricity delivered to the City in the most recent 3 year period. The agreement expires in If a party has: breached a material obligation which remains unremedied for 30 days after receiving notice of the breach; or breached a payment obligation which remains unremedied for 5 business days; or provided a false or misleading material representation which has not been corrected within 30 days; or suffers an insolvency event; then the other party can terminate the agreement by giving 10 days prior written notice to the defaulting party. If SW2 does not deliver energy in accordance with the agreement, SW2 must pay the City an amount equal to the product of (a) US$ and (b) the positive difference between the minimum annual quantity and the actual net electricity of the City. Individual payments cannot exceed US$480,000 during any annual period, and the aggregate total of all payments cannot exceed US$2,400,000 over the entire term of the agreement. (vi) Interconnection (transmission connection) agreement See summary of interconnection (transmission connection) agreement described for SW1 above. (vii) Land leases and easements SW2 is a party to 10 easements with relevant landowners of the site of the Sweetwater Wind 2 project. The initial term of each of the easements expires 32 years from the effective date of the easement. The easements allow SW2 to erect, maintain and operate transmission facilities. 219

222 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS A non-defaulting party may terminate the agreement if: (a) the other party fails to pay amounts when due which is left uncured for 30 days after written notice to the defaulting party, (b) the other party fails to perform any of the other covenants in the easement agreement which is left uncured for 30 days after written notice to the defaulting party or (c) the other party enters into a bankruptcy proceeding that is not dismissed within 60 days after the filing date. SW2 is also a party to 2 easements with relevant landowners of the site of the Sweetwater Wind 2 project. The term of each of those easements begins on the effective date of the easement and continues through the operation period of the wind farm. The easements allow SW2 to erect, maintain and operate transmission facilities and wind turbines. SW2 makes certain royalty and rental payments to the landowners. The same default provisions as in the transmission easements described immediately above apply to these easements. a3.5.3 Blue Canyon stage 1: Material Contracts (i) Limited liability company agreement of project company See summary of substantially similar agreement described for SW1 above. (ii) Turbine warranty agreement Blue Canyon Windpower LLC, a Texas limited liability company ( Blue Canyon Windpower ), entered into a turbine warranty agreement with NEG Micon USA, Inc., an Illinois corporation ( NEG ). The warranty period begins upon the facility substantial completion date (October 29, 2003) and expires five years thereafter. NEG warrants that: (a) the average availability of the turbines will not be less than 93% for the first six months after facility substantial completion and will not be less than 97% thereafter and (b) sound levels of the turbines will meet certain standards. If the minimum average availability is not met, NEG must pay liquidated damages (NEG also receives an incremental bonus payment when availability is above the guaranteed levels). If the sound warranty is not met, NEG must perform the appropriate repairs or replacements. (iii) Operation & maintenance agreement Blue Canyon Windpower entered into an operation, maintenance and service agreement with NEG, for the provision by NEG of operation, maintenance, service and repair the turbine equipment at the Blue Canyon wind farm project. The term of the agreement ends upon the expiration of the base warranty period under the turbine warranty agreement (October 29, 2008). Either party can terminate the agreement by giving 30 days prior written notice if the other party has breached a material obligation which remains unremedied for 30 days after receiving notice of the breach. (iv) Turbine guarantees NEG Micon A/S, Inc., a Danish corporation, guarantees the performance of all obligations, liabilities and duties (including any obligation to pay money) of its subsidiary NEG with respect to the turbine warranty agreement and the operation, maintenance and service agreement. (v) Power purchase agreement Blue Canyon Windpower has entered into a power purchase agreement with Western Farmers Electric Cooperative, an Oklahoma corporation ( WFEC ), under which WFEC must buy all of the electricity generated at the Blue Canyon wind farm facility. Blue Canyon Windpower must deliver not less than 75% of the estimated annual energy output, which is 280,124 MWh. The term of the agreement expires on January 1, The contract price varies depending on time of year and time of day that the energy is produced. If a party has: breached a material obligation which remains unremedied for 30 days after receiving notice of the breach; or breached a payment obligation; then the non-defaulting party can terminate the agreement or suspend performance by giving written notice to the defaulting party. 220

223 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT (vi) Interconnection (transmission connection) agreement Blue Canyon Windpower entered into an interconnection agreement with Southwest Power Pool, Inc., an Arkansas corporation ( SPP ). The project is connected by a 138kV transmission line into WFEC s transmission system. SPP agrees to provide transmission capability to enable Blue Canyon Windpower to deliver electricity to SPP s and WFEC s transmission network. The agreement may be terminated (a) by mutual agreement of the parties, (b) if the facility has permanently ceased operations or (c) by Blue Canyon Windpower, after giving SPP 60 days prior written notice. (vii) Land leases Blue Canyon Windpower is a party to 2 ground leases with relevant landowners of the site of the Blue Canyon wind farm project. The initial term of each of the leases expires May 31, 2023, with an option to extend by one additional 10-year term. The leases allow Blue Canyon Windpower to erect, maintain and operate wind turbines and transmitting the converted electrical power. Blue Canyon Windpower makes certain royalty and rental payments to the landowners. The landowner may terminate the agreement if Blue Canyon Windpower fails to perform any of the other covenants in the lease and such failure is left uncured for 60 days after written notice to Blue Canyon Windpower. Blue Canyon Windpower is also party to substation, laydown, construction and access, and build-out easements related to the project. a3.5.4 Caprock Wind: Material Contracts (i) Limited liability company agreement of project company See summary of substantially similar agreement described for SW1 above. (ii) Construction contract Caprock Wind LLC, a Delaware limited liability company ( Caprock Wind ) entered into an EPC contract with each of Texas Wind Power Company, a Texas corporation ( TWP ), and Mitsubishi Power Systems, Inc., a Delaware corporation ( MPS ), for the engineering, design, procurement, construction, installation and testing of the Caprock project. (iii) Warranty agreements Caprock Wind entered into a turbine warranty agreement with MPS. The warranty period began on the date of the phase A commercial operation date (December 30, 2004) and remains in effect until the 2nd anniversary of the total substantial completion date, which is then automatically extended for an additional 3 year period. MPS also provides a power curve warranty; if MPS cannot meet the power curve after an opportunity to repair the condition, MPS must pay damages to Caprock Windpower. During the warranty period, MPS guarantees that the project will produce a guaranteed output of 95%. If the output warranty is not met, MPS must pay damages to Caprock Windpower; if output is greater than 97%, then Caprock Windpower will pay MPS a bonus. The aforementioned remedies do not apply if, amongst other things: (a) the turbines were modified by any party other than MPS without the prior written consent of MPS, (b) any company maintaining the turbines fails to perform duties in a good and workmanlike manner, (c) there is negligence or misuse of the turbines or (d) the loss or damage is caused by force majeure. Caprock Windpower also entered into a balance of plant warranty agreement with TWP under which TWP warrants the balance of plant of the project. The warranty period is effective for 12 months after the substantial completion date of the applicable equipment under the EPC contract and claims for breach of warranties can be made up to one year following the warranty period. TWP will repair, replace or retrofit defective parts. (iv) Turbine service agreement Caprock Windpower entered into a turbine service agreement with MPS under which MPS agrees to (a) maintain and service the wind turbines in accordance with the agreement, good utility industry practices and the Mitsubishi Heavy Industries, Ltd., a Japan corporation ( MHI ) O&M procedures manual for wind turbines and (b) perform all maintenance on the wind turbines for the length of the turbine warranty period. (v) Operation & maintenance agreement Caprock Windpower has entered into an operation & maintenance agreement with enxco Service Corporation, a Delaware corporation ( enxco ) under which enxco must perform all maintenance, operations and administration activities related to the Caprock wind farm facility in accordance with all applicable laws, prudent operator standards and using commercially reasonable best efforts. The term of this agreement began on December 28, 2004 and will end upon the expiration of the extended warranty period under the turbine warranty agreement (5 years from date of project substantial completion, which occurred on April 29, 2005). 221

224 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS A party to the operation & maintenance agreement can terminate the agreement by giving notice if the other party has: failed to make a payment which remains unremedied for 30 business days after receiving notice of the payment failure; or enters into bankruptcy proceedings that are not dismissed within 60 days of the filing date. In addition Caprock may terminate: by the giving of notice if the operator breaches a material obligation (other than for force majeure) which remains unremedied for 30 days after receiving notice of the breach (unless the breach cannot be reasonably cured within 30 days, in which case operator must proceed with reasonable diligence to cure within 60 total days); or by the giving of 30 days notice if (a) a casualty or condemnation of a substantial portion of the wind generation facility occurs such that the remainder cannot be operated on a commercial basis or (b) a force majeure event occurs and continues for more than 12 months; or for convenience by giving enxco 180 days written notice and paying amounts due through the date of termination. enxco may terminate by the giving of notice if Caprock Windpower breaches a material obligation (other than for force majeure) which remains unremedied for 30 days after receiving notice of the breach (unless the breach cannot be reasonably cured within 30 days). (vi) Guarantee MHI guarantees the performance of all obligations, liabilities and duties (including any obligation to pay money) of its subsidiary MPS with respect to the EPC contract, turbine warranty agreement and the turbine service agreement. (vii) Power purchase agreement Caprock Windpower has entered into a power purchase agreement with Southwestern Public Service Company, a New Mexico corporation ( Southwestern ), under which Caprock Windpower must provide at least 225,000 MWh (as adjusted annually based on P50 output) of energy annually. The term of the agreement expires 20 years from the Start Date (which occurred on December 31, 2004). The price paid to Caprock Windpower for energy produced by the wind farm facility depends on the wind farm project qualifying for production tax credits under U.S. federal tax law. A non-defaulting party may terminate the agreement with 0-60 days (depending on the type of default e.g., no cure period for dissolution of Southwestern and 60 days for material misrepresentation by Caprock Windpower) prior written notice to the defaulting party. (viii) Interconnection (transmission connection) agreement Caprock Windpower entered into an interconnection agreement with SPP. The project is connected by a 115kV transmission line into the SPP transmission system. The agreement expires November 1, Either party may terminate the interconnection agreement if the other party fails to perform any obligation under the agreement and such failure is not remedied within 30 days of notice to the breaching party. The agreement may also be terminated (a) by Caprock Windpower by giving SPP 90 days prior written notice or (b) by SPP by giving notice to FERC that the wind farm facility has permanently ceased operations. (ix) Land leases and easements Caprock Windpower is a party to 9 easements with relevant landowners of the site of the Caprock project. The term of each of the easements is perpetual. The easements allow Caprock to erect, maintain and operate transmission facilities. Caprock Windpower is also a party to 14 leases with relevant landowners of the site of the Caprock project. The initial term of each of the leases expires 50 years from the date of commencement of operations. The easements allow Caprock to erect, maintain and operate wind turbines and transmitting the converted electrical power. Caprock makes certain royalty and rental payments to the landowners. 222

225 BABCOCk & BROWN WIND PARTNERS PROSPECTUS & PRODUCT DISCLOSURE STATEMENT (x) Letter of credit agreement In December 2004, Caprock Windpower entered into a US$4 million security fund letter of credit and reimbursement agreement facility with Bayerische Landesbank as the issuing bank. The issuing bank issued a US$2 million letter of credit to Southwestern to maintain the security fund required under the Caprock power purchase agreement. Any drawdowns on the letter of credit will be replenished by drawing down on the letter of credit facility, which will automatically constitute a loan made to Caprock Windpower. The letter of credit agreement contains representations and warranties and undertakings usual for a facility of this kind. The facility is subject to events of default, also usual for a facility of this kind, which would enable Bayerische Landesbank to accelerate the repayment of the facility, terminate the letter of credit or foreclose on the secured assets under the facility. The issuing bank holds a comprehensive first-priority security package over Caprock Windpower s assets (real and personal) in support of the obligations of Caprock Windpower under the letter of credit agreement. Caprock Windpower has also pledged its interests in its wholly-owned subsidiary, Caprock Wind Investments LLC, as security for the obligations under the letter of credit facility. a3.5.5 Combine Hills 1: Material Contracts (i) Limited liability company agreement of project company See summary of substantially similar agreement described for SW1 above. (ii) Turbine warranty agreement Eurus Combine Hills I LLC, a Delaware limited liability company ( Combine Hills I ), entered into a turbine warranty agreement with MPS. The warranty period begins at substantial completion (December 17, 2003), and ends at the 10th anniversary of substantial completion (December 17, 2013). Under the agreement, MPS warrants that the wind farm project will produce a guaranteed output of 95% of the projected output and the turbines will have a maximum sound power level. MPS also warrants that the turbines will pass a power curve test. During the warranty period, if the wind farm project does not meet the guaranteed output, MPS must pay damages; if the project does not meet the other warranties, MPS must perform the appropriate repairs or replacements. MPS s obligations are subject to limitation in instances of misuse of the wind turbines or where the loss or damage results from force majeure. (iii) Turbine service agreements Combine Hills I entered into a turbine service agreement with MPS under which MPS agrees to (a) maintain and service the wind turbines in accordance with the agreement, good utility industry practices and the MHI O&M procedures manual for wind turbines and (b) perform all maintenance on the wind turbines through the 10th anniversary of the substantial completion date of the project (December 17, 2013). However, Combine Hills I may terminate the turbine service agreement with 6 months prior written notice following the 5th anniversary. Combine Hills I also entered into an extended turbine service agreement with MPS under which MPS provides substantially similar services as under the turbine service agreement. Combine Hills must give 6 months prior written notice to the expiration of the turbine service agreement in order to make effective the extended service agreement, the term of which is for an additional 5 years. (iv) Operation & maintenance agreement Combine Hills I has entered into a services agreement for operation and maintenance services with RMC Management Corporation, a California corporation ( RMC ) under which RMC must perform all maintenance and operations activities related to the wind generation facility in accordance with prudent utility practice, all applicable laws, any applicable agreements and maintenance and service recommendations and requirements. The initial term of this agreement began on December 23, 2003 and ends 2 years from the commercial operations date (as defined in the power purchase agreement), which date will be December 22, Upon written notice to RMC at least 60 days prior to expiration of the initial term, Combine Hills I may extend the term of the agreement for an additional 8 years. A party to the services agreement can terminate the agreement by giving notice if the other party has breached a material obligation which remains unremedied for 30 days after receiving notice of the breach; or with 6 months advance notice. 223

226 APPENDIX 03 SUMMARY OF MATERIAL CONTRACTS RELATING TO WIND FARM PROJECTS (v) Guarantee MHI guarantees the performance of all obligations, liabilities and duties (including any obligation to pay money) of its subsidiary MPS with respect to the turbine warranty agreement and the turbine service agreement. (vi) Power purchase agreement Combine Hills I has entered into a power purchase agreement with PacificCorp, an Oregon corporation acting in its merchant function capacity ( PacificCorp ), under which PacificCorp must buy all of the delivered energy. Combine Hills I agrees that it will achieve certain guaranteed availability percentages. The term of the agreement expires 20 years after the commercial operation date (which will be December 22, 2023). A non-defaulting party can terminate the agreement by giving 5 days prior written notice to the other party if: a party has breached a material obligation; or a party has breached a payment obligation which remains unremedied for 10 days after notice of default; or a party has suffered an insolvency event; or Combine Hills I fails to achieve an availability percentage of at least 50% for two consecutive years or 3 out of 5 consecutive years; or Combine Hills I fails to provide the required credit support under the power purchase agreement. (vii) Interconnection (transmission connection) agreement Combine Hills I entered into an interconnection agreement (and a separate interconnection O&M agreement) with PacificCorp Transmission, an Oregon corporation ( PacTrans ). The wind farm project is connected by a 69kV transmission line which is operational into the PacTrans transmission system. The agreement remains in effect for as long as the wind farm project is connected to the transmission system. PacTrans may terminate the interconnection agreement if Combine Hills I consistently fails to perform its obligations under the agreement that create a serious threat to the transmission system with 90 days of written notice. The agreement may also be terminated by mutual agreement or if the wind farm facility is abandoned or at the end of its commercially useful life. (viii) Land leases and easements Combine Hills I is a party to 4 wind energy lease and easement agreements (along with wind easements) with relevant landowners of the site of the Combine Hills project. The term of each of the agreements expires 60 years from the effective date. The agreements allow Combine Hills I to erect, maintain and operate wind turbines and any activities related to the windpower facility. Combine Hills I makes certain royalty and rental payments to the landowners. The landowner may terminate the agreement if there is a material default by Combine Hills I. Combine Hills I may terminate the agreement upon 30 days written notice to the landowner. 224

227 Pin cheque(s) here (do not staple) Broker code Adviser code Babcock & Brown Wind Partners Limited ABN Babcock & Brown Wind Partners (Bermuda) Limited ARBN and Babcock & Brown Wind Partners Services Limited ABN AFSL as Responsible Entity for Babcock & Brown Wind Partners Trust ARSN Broker Firm Offer Application Form This Broker Firm Offer Application Form is important. If you are in any doubt as to how to deal with it, please contact your accountant, stockbroker, lawyer, Australian financial services licensee, authorised representative or other professional adviser. You should read the entire Offer Document carefully before completing this form. To meet the requirements of the Corporations Act, this Broker Firm Offer Application Form must not be distributed unless attached to, or accompanied by the Offer Document. Applications for Stapled Securities will only be accepted if made on a Broker Firm Offer Application Form issued together with the Offer Document. Your Application is, to the extent permitted by law, irrevocable. Capitalised words and certain terms used in this form have the same meaning given to them in the Offer Document. A C Number of Stapled Securities applied for Offer price per Stapled Security I/We lodge full Application Money,, at A$1.40 B A$,,. (consisting of one unit in BBWPT, one ordinary share in BBWPL and one ordinary share in BBWPB, stapled together) PLEASE COMPLETE YOUR DETAILS BELOW (refer overleaf for correct forms of registrable names) Applicant Surname/Company name Title First name Middle name Joint Applicant #2 Surname Title First name Middle name Designated account e.g. <Super Fund> (or joint Applicant #3) D PLEASE COMPLETE ADDRESS DETAILS PO Box/RMB/Locked bag/care of (c/-)/property name/building name (if applicable) Unit number/level Street number Street name Suburb/City or town State Postcode address (only for purpose of electronic communication of shareholder information) E F CHESS HIN (if you want to add this holding to a specific CHESS holder, write the number here) X TFN/ABN/Exemption code First Applicant Joint Applicant #2 Joint Applicant #3 TFN/ABN type if NOT an individual, please mark the appropriate box Company Partnership Trust Super fund Telephone number where you can be contacted during business hours G ( ) H Contact name (PRINT) Cheque(s) or money order(s) should be made payable in accordance with the instructions from the Broker from which you received your allocation of Stapled Securities. Cheque or money order number BSB Account number - NO SIGNATURES ARE REQUIRED ON THIS FORM Lodgement instructions Broker Firm Offer Applicants should complete and lodge this Broker Firm Offer Application Form, in accordance with the instructions of the Broker from which you received your allocation of Stapled Securities, by no later than 5.00pm (Sydney time) on Friday 21 October 2005 (subject to change without notice). Babcock & Brown Wind Partners reserves the right to reject any Application which is not correctly completed or is submitted by any person whom it believes may be ineligible. Babcock & Brown Wind Partners takes no responsibility for any acts or omissions by your Broker in connection with this Broker Firm Offer Application Form. If you require further information on how to complete this form, or if any of the above details are incorrect, please contact your Broker or the Babcock & Brown Wind Partners Stapled Security Offer Information Line on BBW IPO001 *BBW IPO001*

228 Your guide to the Broker Firm Offer Application Form Each of the Stapled Securities to which this Broker Firm Offer Application Form relates represents one unit in BBWPT, one ordinary share in BBWPL and one ordinary share in BBWPB, stapled together such that the unit and those shares cannot be traded or dealt with separately. Further details about the Stapled Securities are contained in the Offer Document lodged with ASIC on 26 September 2005 and any replacement or supplementary Offer Document issued by Babcock & Brown Wind Partners. The Offer Document contains important information about investing in the Stapled Securities. You should read the Offer Document before applying for Stapled Securities. The Offer Document will expire 13 months after the date of the Offer Document. Australian Securities and Investment Commission requires that a person who provides access to an electronic Broker Firm Offer Application Form must provide access, by the same means and at the same time, to the relevant Offer Document and any replacement or supplementary Offer Document. This Broker Firm Offer Application Form is included in the Offer Document. During the Offer Period, Babcock & Brown Wind Partners will send paper copies of the Offer Document, any replacement or supplementary Offer Document and the Broker Firm Offer Application Form, free of charge on request. Please complete all relevant white sections of the Broker Firm Offer Application Form in BLOCK LETTERS, using black or blue ink. These instructions are crossreferenced to each section of the form. A B C D E F G H Insert the number of Stapled Securities you wish to apply for. You may be issued all of the Stapled Securities applied for or a lesser number. Insert the relevant amount of Application Money. To calculate your Application Money, multiply the number of Stapled Securities applied for by A$1.40. Amounts should be in Australian dollars. Please make sure the amount of your Application Money/cheque(s) equals this amount. Write the full name you wish to appear on the statement of Stapled Securities. This must be either your own name or the name of a company. Up to three joint Applicants may register. You should refer to the table below for the correct registrable title. Please enter your postal address for all correspondence. All communications to you from Babcock & Brown Wind Partners and Registry will be mailed to the person(s) and address as shown. For joint Applicants only one address can be entered. If you are already a CHESS participant or sponsored by a CHESS participant, write your Holder Identification Number ( HIN ) here. Enter your Tax File Number ( TFN ) or exemption category. Business enterprises may alternatively quote their Australian Business Number ( ABN ). Where applicable, please enter the TFN or ABN for each joint Applicant. Collection of TFN(s) and ABN(s) is authorised by taxation laws. Quotation of TFN(s) and ABN(s) is not compulsory and will not affect your Application. However, if these are not provided, Babcock & Brown Wind Partners will be required to deduct tax at the highest marginal rate of tax (including the Medicare levy) from payments. Please enter your telephone number(s), area code and contact name in case we need to contact you in relation to your application. Please complete payment details as follows: Make your cheque(s) payable in accordance with the instructions from the Broker from whom you received your allocation of Stapled Securities. The amount should agree with the amount shown in Section B. Sufficient cleared funds should be held in your account, as cheque(s) returned unpaid are likely to result in your Application being rejected. Pin (do not staple) your cheque(s) to the Broker Firm Offer Application Form where indicated. PERSONAL INFORMATION ASX Perpetual Registrars Limited advise that once you become a securityholder in Babcock & Brown Wind Partners, Chapter 2C of the Corporations Act 2001 (Cth) requires information about you (including your name, address and details of the Stapled Securities you hold) to be included in Babcock & Brown Wind Partners public register. This information must continue to be included in Babcock & Brown Wind Partners public register if you cease to be a Securityholder. These statutory obligations are not altered by the Privacy Amendment (Private Sector) Act Information is collected to provide facilities and services to you as an investor and to administer your Stapled Security holding. If some or all of the information is not collected then it might not be possible to process your Application or administer your Stapled Security holding. Our privacy policy is available on our website ( DECLARATION By returning this Broker Firm Offer Application Form and paying the amount of the Application Money I/We: 1 represent and warrant that I/we have received a paper or electronic copy of the Offer Document and any replacement supplementary document accompanying this Broker Firm Offer Application Form and have read them in full; 2 accept the terms and conditions of the Offer; 3 accept and agree to be bound by the Constitutions of Babcock & Brown Wind Partners Limited and Babcock & Brown Wind Partners (Bermuda) Limited and the Trust Constitution for Babcock & Brown Wind Partners Trust, as amended from time to time, and all the conditions of issue of Stapled Securities; 4 represent and warrant that I am/we are over the age of 18 years and not under any legal disability; 5 authorise the Underwriters and the Issuers and their respective officers or agents, to do anything on my/our behalf necessary for Stapled Securities to be allotted to me/us, including without limitation to sign any necessary documents; 6 represent and warrant that: (a) I am/we are not in the United States and not acting for the account or benefit of another person who is a US person or within the United States; and (b) the law of any other place does not prohibit me from being given the Offer Document and any replacement or supplementary document or making an Application on this Broker Firm Offer Application Form. 7 represent and warrant that all details and statements in the Broker Firm Offer Application Form are complete and accurate. CORRECT FORMS OF REGISTRABLE NAMES Note that ONLY legal entities are allowed to hold Stapled Securities. Applications must be in the name(s) of natural persons or companies. At least one full given name and the surname is required for each natural person. The name of the beneficiary or any other non-registrable name may be included by way of an account designation if completed exactly as described in the examples of correct forms below. Type of investor Correct form of registration Incorrect form of registration Individual Mrs Katherine Clare Edwards K C Edwards Use given names in full, not initials Company Use company s full title, not abbreviations Liz Biz Pty Ltd Liz Biz P/L or Liz Biz Co. Mr Peter Paul Tranche & Peter Paul & Ms Mary Orlando Tranche Mary Tranche Joint holdings Use full and complete names Trusts Use the trustee(s) personal name(s) Deceased estates Use the executor(s) personal name(s) Minor (a person under the age of 18 years) Use the name of a responsible adult with an appropriate designation Mrs Alessandra Herbert Smith <Alessandra Smith A/C> Ms Sophia Garnet Post & Mr Alexander Traverse Post <Est Harold Post A/C> Mrs Sally Hamilton <Henry Hamilton> Alessandra Smith Family Trust Estate of late Harold Post or Harold Post Deceased Master Henry Hamilton Partnerships Mr Frederick Samuel Smith & Fred Smith & Son Use the partners personal names Mr Samuel Lawrence Smith <Fred Smith & Son A/C> Long names Mr Hugh Adrian John Smith-Jones Mr Hugh A J Smith Jones Clubs/Unincorporated bodies/business names Use office bearer(s) personal name(s) Superannuation funds Use the name of the trustee of the fund Mr Alistair Edward Lilley <Vintage Wine Club A/C> XYZ Pty Ltd <Super Fund A/C> Vintage Wine Club XYZ Pty Ltd Superannuation Fund Put the name(s) of any joint Applicant(s) and/or account description using < > as indicated above in designated spaces at section C on the Application.

229 Pin cheque(s) here (do not staple) Broker code Adviser code Babcock & Brown Wind Partners Limited ABN Babcock & Brown Wind Partners (Bermuda) Limited ARBN and Babcock & Brown Wind Partners Services Limited ABN AFSL as Responsible Entity for Babcock & Brown Wind Partners Trust ARSN Broker Firm Offer Application Form This Broker Firm Offer Application Form is important. If you are in any doubt as to how to deal with it, please contact your accountant, stockbroker, lawyer, Australian financial services licensee, authorised representative or other professional adviser. You should read the entire Offer Document carefully before completing this form. To meet the requirements of the Corporations Act, this Broker Firm Offer Application Form must not be distributed unless attached to, or accompanied by the Offer Document. Applications for Stapled Securities will only be accepted if made on a Broker Firm Offer Application Form issued together with the Offer Document. Your Application is, to the extent permitted by law, irrevocable. Capitalised words and certain terms used in this form have the same meaning given to them in the Offer Document. A C Number of Stapled Securities applied for Offer price per Stapled Security I/We lodge full Application Money,, at A$1.40 B A$,,. (consisting of one unit in BBWPT, one ordinary share in BBWPL and one ordinary share in BBWPB, stapled together) PLEASE COMPLETE YOUR DETAILS BELOW (refer overleaf for correct forms of registrable names) Applicant Surname/Company name Title First name Middle name Joint Applicant #2 Surname Title First name Middle name Designated account e.g. <Super Fund> (or joint Applicant #3) D PLEASE COMPLETE ADDRESS DETAILS PO Box/RMB/Locked bag/care of (c/-)/property name/building name (if applicable) Unit number/level Street number Street name Suburb/City or town State Postcode address (only for purpose of electronic communication of shareholder information) E F CHESS HIN (if you want to add this holding to a specific CHESS holder, write the number here) X TFN/ABN/Exemption code First Applicant Joint Applicant #2 Joint Applicant #3 TFN/ABN type if NOT an individual, please mark the appropriate box Company Partnership Trust Super fund Telephone number where you can be contacted during business hours G ( ) H Contact name (PRINT) Cheque(s) or money order(s) should be made payable in accordance with the instructions from the Broker from which you received your allocation of Stapled Securities. Cheque or money order number BSB Account number - NO SIGNATURES ARE REQUIRED ON THIS FORM Lodgement instructions Broker Firm Offer Applicants should complete and lodge this Broker Firm Offer Application Form, in accordance with the instructions of the Broker from which you received your allocation of Stapled Securities, by no later than 5.00pm (Sydney time) on Friday 21 October 2005 (subject to change without notice). Babcock & Brown Wind Partners reserves the right to reject any Application which is not correctly completed or is submitted by any person whom it believes may be ineligible. Babcock & Brown Wind Partners takes no responsibility for any acts or omissions by your Broker in connection with this Broker Firm Offer Application Form. If you require further information on how to complete this form, or if any of the above details are incorrect, please contact your Broker or the Babcock & Brown Wind Partners Stapled Security Offer Information Line on BBW IPO001 *BBW IPO001*

230 Your guide to the Broker Firm Offer Application Form Each of the Stapled Securities to which this Broker Firm Offer Application Form relates represents one unit in BBWPT, one ordinary share in BBWPL and one ordinary share in BBWPB, stapled together such that the unit and those shares cannot be traded or dealt with separately. Further details about the Stapled Securities are contained in the Offer Document lodged with ASIC on 26 September 2005 and any replacement or supplementary Offer Document issued by Babcock & Brown Wind Partners. The Offer Document contains important information about investing in the Stapled Securities. You should read the Offer Document before applying for Stapled Securities. The Offer Document will expire 13 months after the date of the Offer Document. Australian Securities and Investment Commission requires that a person who provides access to an electronic Broker Firm Offer Application Form must provide access, by the same means and at the same time, to the relevant Offer Document and any replacement or supplementary Offer Document. This Broker Firm Offer Application Form is included in the Offer Document. During the Offer Period, Babcock & Brown Wind Partners will send paper copies of the Offer Document, any replacement or supplementary Offer Document and the Broker Firm Offer Application Form, free of charge on request. Please complete all relevant white sections of the Broker Firm Offer Application Form in BLOCK LETTERS, using black or blue ink. These instructions are crossreferenced to each section of the form. A B C D E F G H Insert the number of Stapled Securities you wish to apply for. You may be issued all of the Stapled Securities applied for or a lesser number. Insert the relevant amount of Application Money. To calculate your Application Money, multiply the number of Stapled Securities applied for by A$1.40. Amounts should be in Australian dollars. Please make sure the amount of your Application Money/cheque(s) equals this amount. Write the full name you wish to appear on the statement of Stapled Securities. This must be either your own name or the name of a company. Up to three joint Applicants may register. You should refer to the table below for the correct registrable title. Please enter your postal address for all correspondence. All communications to you from Babcock & Brown Wind Partners and Registry will be mailed to the person(s) and address as shown. For joint Applicants only one address can be entered. If you are already a CHESS participant or sponsored by a CHESS participant, write your Holder Identification Number ( HIN ) here. Enter your Tax File Number ( TFN ) or exemption category. Business enterprises may alternatively quote their Australian Business Number ( ABN ). Where applicable, please enter the TFN or ABN for each joint Applicant. Collection of TFN(s) and ABN(s) is authorised by taxation laws. Quotation of TFN(s) and ABN(s) is not compulsory and will not affect your Application. However, if these are not provided, Babcock & Brown Wind Partners will be required to deduct tax at the highest marginal rate of tax (including the Medicare levy) from payments. Please enter your telephone number(s), area code and contact name in case we need to contact you in relation to your application. Please complete payment details as follows: Make your cheque(s) payable in accordance with the instructions from the Broker from whom you received your allocation of Stapled Securities. The amount should agree with the amount shown in Section B. Sufficient cleared funds should be held in your account, as cheque(s) returned unpaid are likely to result in your Application being rejected. Pin (do not staple) your cheque(s) to the Broker Firm Offer Application Form where indicated. PERSONAL INFORMATION ASX Perpetual Registrars Limited advise that once you become a securityholder in Babcock & Brown Wind Partners, Chapter 2C of the Corporations Act 2001 (Cth) requires information about you (including your name, address and details of the Stapled Securities you hold) to be included in Babcock & Brown Wind Partners public register. This information must continue to be included in Babcock & Brown Wind Partners public register if you cease to be a Securityholder. These statutory obligations are not altered by the Privacy Amendment (Private Sector) Act Information is collected to provide facilities and services to you as an investor and to administer your Stapled Security holding. If some or all of the information is not collected then it might not be possible to process your Application or administer your Stapled Security holding. Our privacy policy is available on our website ( DECLARATION By returning this Broker Firm Offer Application Form and paying the amount of the Application Money I/We: 1 represent and warrant that I/we have received a paper or electronic copy of the Offer Document and any replacement supplementary document accompanying this Broker Firm Offer Application Form and have read them in full; 2 accept the terms and conditions of the Offer; 3 accept and agree to be bound by the Constitutions of Babcock & Brown Wind Partners Limited and Babcock & Brown Wind Partners (Bermuda) Limited and the Trust Constitution for Babcock & Brown Wind Partners Trust, as amended from time to time, and all the conditions of issue of Stapled Securities; 4 represent and warrant that I am/we are over the age of 18 years and not under any legal disability; 5 authorise the Underwriters and the Issuers and their respective officers or agents, to do anything on my/our behalf necessary for Stapled Securities to be allotted to me/us, including without limitation to sign any necessary documents; 6 represent and warrant that: (a) I am/we are not in the United States and not acting for the account or benefit of another person who is a US person or within the United States; and (b) the law of any other place does not prohibit me from being given the Offer Document and any replacement or supplementary document or making an Application on this Broker Firm Offer Application Form. 7 represent and warrant that all details and statements in the Broker Firm Offer Application Form are complete and accurate. CORRECT FORMS OF REGISTRABLE NAMES Note that ONLY legal entities are allowed to hold Stapled Securities. Applications must be in the name(s) of natural persons or companies. At least one full given name and the surname is required for each natural person. The name of the beneficiary or any other non-registrable name may be included by way of an account designation if completed exactly as described in the examples of correct forms below. Type of investor Correct form of registration Incorrect form of registration Individual Mrs Katherine Clare Edwards K C Edwards Use given names in full, not initials Company Use company s full title, not abbreviations Liz Biz Pty Ltd Liz Biz P/L or Liz Biz Co. Mr Peter Paul Tranche & Peter Paul & Ms Mary Orlando Tranche Mary Tranche Joint holdings Use full and complete names Trusts Use the trustee(s) personal name(s) Deceased estates Use the executor(s) personal name(s) Minor (a person under the age of 18 years) Use the name of a responsible adult with an appropriate designation Mrs Alessandra Herbert Smith <Alessandra Smith A/C> Ms Sophia Garnet Post & Mr Alexander Traverse Post <Est Harold Post A/C> Mrs Sally Hamilton <Henry Hamilton> Alessandra Smith Family Trust Estate of late Harold Post or Harold Post Deceased Master Henry Hamilton Partnerships Mr Frederick Samuel Smith & Fred Smith & Son Use the partners personal names Mr Samuel Lawrence Smith <Fred Smith & Son A/C> Long names Mr Hugh Adrian John Smith-Jones Mr Hugh A J Smith Jones Clubs/Unincorporated bodies/business names Use office bearer(s) personal name(s) Superannuation funds Use the name of the trustee of the fund Mr Alistair Edward Lilley <Vintage Wine Club A/C> XYZ Pty Ltd <Super Fund A/C> Vintage Wine Club XYZ Pty Ltd Superannuation Fund Put the name(s) of any joint Applicant(s) and/or account description using < > as indicated above in designated spaces at section C on the Application.

231 corporate DirEctory Babcock & Brown Wind partners Level 39, Chifley Tower 2 Chifley Square Sydney NSW 2000 lawyers to BBWp Mallesons stephen jaques Level 60, 1 Farrer Place Sydney NSW 2000 Financial adviser Babcock & Brown australia pty ltd Level 39, Chifley Tower 2 Chifley Square Sydney NSW 2000 independent accountant on Historical Financial information ernst & young 680 George Street Sydney NSW 2000 Design: Dupree Design Group Print: Offset Alpine Printing Pty Ltd. Cover Photo: Steve Winter / National Geographic joint Bookrunners j.p. Morgan australia limited Level 32, 225 George Street Sydney NSW 2000 UBs ag, australia Branch Level 25, Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Co-managers Bell potter securities limited Level 33, Grosvenor Place 225 George Street Sydney NSW 2000 deutsche Bank securities australia limited Deutsche Bank Place Cnr Hunter & Phillip Street Sydney NSW 2000 ord Minnett limited Level 8, NAB House 255 George Street Sydney NSW 2000 tricom equities limited Exchange House 10 Bridge Street Sydney NSW 2000 UBs private Clients australia Level 27, Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Wilson HtM Corporate Finance limited Level 21, Riverside Centre 123 Eagle Street Brisbane QLD 4000 independent accountant on Forecast Financial information ernst & young transaction advisory services limited 680 George Street Sydney NSW 2000 taxation adviser ernst & young Waterfront Place 1 Eagle Street Brisbane QLD 4000 registry asx perpetual registrars limited Level 8, 580 George Street Sydney NSW 2000 Babcock & Brown Wind partners stapled security offer information line Babcock & Brown Wind partners Website 229

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