EXCHANGE AND OPTION AGREEMENT

 

May 1, 2019

 

1.1

Defined Terms

1

1.2

Rules of Construction

13

1.3

Entire Agreement

13

1.4

Time of Essence

14

1.5

Governing Law and Submission to Jurisdiction

14

1.6

Severability

14

1.7

Schedules

14

2.1

Exchange Right

14

2.2

Early Exchange Events

15

2.3

Hydro Equity Interest Amount

16

2.4

Early Exchange True-Up Adjustment

16

2.5

Cash Payments

17

2.6

Top-Up Option

17

2.7

Exercise of Exchange Right

18

2.8

Exchange Request by Investor

18

2.9

Solvency Restrictions

18

2.10

Consideration

19

2.11

Calculation of Hydro Equity Interest Percentage

19

3.1

Representations and Warranties of the Issuer

19

3.2

Representations and Warranties of the Investor

20

4.1

Additional Early Exchange Events

20

4.2

Exchange Right is Exclusive Remedy

21

5.1

Exchange, True-Up and Top-Up Procedures

22

5.2

Closing Deliveries of the Investor

23

6.1

Termination

23

7.1

Notices

24

7.2

One Voice Rule

25

7.3

Amendments and Waivers

25

7.4

Assignment

25

7.5

No Recourse Against Others

26

7.6

Successors and Assigns

26

7.7

Further Assurances

26

7.8

Counterparts

26

7.9

Expenses

26

Schedule A - EBITDA Calculation

Schedule B - Tax Deficiency Calculation

Schedule C - Form of Articles of Amendment

divestitures of cash or cash equivalents;

the granting or existence of, or foreclosure or other realization on, any Permitted Encumbrance;

divestitures of inventory, equipment or other assets that, in the Issuer’s reasonable judgment, are damaged, worn-out, redundant, obsolete or no longer used or useful for their intended purposes in the business of the Issuer or its Subsidiaries, including any assets that are being replaced in the Ordinary Course;

the lease, assignment or sub-lease of any real or personal property in the Ordinary Course;

the sale or discount of inventory in the Ordinary Course;

any surrender or waiver of contractual rights or the settlement, release or surrender of contractual rights or other litigation claims of an immaterial nature and in the Ordinary Course;

the licensing or sub-licensing of intellectual property or other general intangibles in the Ordinary Course;

the divestiture of improvements, additions or alterations in connection with the termination of any lease of real property in the Ordinary Course, as required by the terms of such lease;

condemnation or any similar action on assets; and

any divestiture that, but for this clause, would be a Divestiture, if such divestiture has been approved by a majority of the Operating Committee.

any condition or change in conditions generally affecting the industries in which the Issuer and its Subsidiaries operate;

any change in global, national, provincial or regional political conditions (including elections or the outbreak or escalation of war or acts of terrorism) or in general economic, business, regulatory, political, currency, credit, securities or market conditions or in national or global financial, capital or credit markets;

any change in applicable Laws, including any changes to carbon prices or carbon taxes, air quality restrictions (including but not limited to NOx and SOx) or electricity market structure applicable to the Issuer or any of its Subsidiaries;

the Climate Leadership Plan adopted by the Government of Alberta, or any change thereto;

any change in IFRS (or other generally accepted accounting principles applicable to the Issuer or any of Subsidiaries) or changes in regulatory accounting requirements applicable to the industries in which the Issuer and its Subsidiaries operate;

any decline in electricity or commodity prices on a current or forward basis;

any natural disaster or act of terrorism or outbreak or escalation of hostilities or armed conflict, or any governmental response to the foregoing;

the occurrence of any “High Impact, Low Probability Event” as defined in the Alberta power purchase arrangements (“PPAs”) to which the Issuer or its Subsidiaries are subject but, only to the extent such event qualifies as a force majeure under the PPAs;

any action taken (or omitted to be taken) by the Issuer or any of its Subsidiaries which is required to be taken (or omitted to be taken) pursuant to this Agreement or the other Transaction Agreements;

any action taken (or omitted to be taken) by the Issuer at the written request of Brookfield, any Investor, or any Affiliate thereof, or that is consented to by Brookfield, any Investor, or an Affiliate thereof, expressly in writing;

other than risk factors, forward-looking information or statements, or other general cautions, any matter which has been expressly disclosed by the Issuer in the Public Disclosure Documents (as defined in the Investment Agreement) in sufficient detail to enable the Investor to identify and make a reasonably informed assessment of the nature and scope of the matter so disclosed as of the date hereof;

the failure of the Issuer to meet any internal or published projections, forecasts or estimates of revenues, earnings or cash flows, funds from operations, free cash flow, plant availability or generation of electricity (it being understood that the causes underlying such failure may be taken into account in determining whether a Material Adverse Effect has occurred);

the announcement of the execution of this Agreement or in the other Transaction Agreements or the transactions contemplated herein or therein, the consummation of such transactions or the performance of the covenants and obligations herein or therein;

any change in the market price or trading volume of any securities of the Issuer (it being understood that the causes underlying such change in market price or trading volume may be taken into account in determining whether a Material Adverse Effect has occurred);

any downgrade of, or announcement of any intention to review, any credit rating of the Issuer or any of its Subsidiaries publicly disclosed as of the date hereof (it being understood that the causes underlying such downgrade or review may be taken into account in determining whether a Material Adverse Effect has occurred);

any termination of, or announcement of any intention to review or terminate, any of the PPAs to which the Issuer or any of its Subsidiaries are subject, by the Balancing Pool pursuant to section 97 of the Electric Utilities Act (Alberta);

any filing of a Schedule 13D pursuant to the U.S. Exchange Act or an early warning report pursuant to applicable Canadian Securities Laws, in each case whether initial or amended, by a shareholder of the Issuer;

any Encumbrance imposed by any Governmental Entity for taxes not yet due and delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of any Person that then holds, directly or indirectly, the interests in the Hydro Assets in accordance with IFRS (or any other generally accepted accounting principles then applicable such Person);

Encumbrances arising by operation of applicable Laws, securing the claims of persons having taken part in the construction or renovation of real property and other like liens arising in the Ordinary Course (i) which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings and (ii) in respect of which adequate reserves have been established in the books and records of any Hydro Assets Subsidiary or Hydro Assets Owner, as applicable, to the extent reserves therefor are required by IFRS (or any other generally accepted accounting principles then applicable to such Person);

statutory Encumbrances incurred or pledges or deposits made under worker’s compensation, employment insurance and other social security legislation;

Encumbrances or deposits to secure the performance of bids, tenders, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature (other than for borrowed money) incurred in the Ordinary Course;

servitudes, easements, rights-of-way, restrictions and other similar Encumbrances incurred in the Ordinary Course and Encumbrances consisting of zoning or building restrictions, easements, licences, restrictions on the use of property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the Hydro Assets subject thereto or interfere with carrying on the Hydro Assets Business in the Ordinary Course;

Encumbrances of or resulting from any judgment or award against any Hydro Assets Subsidiary or Hydro Assets Owner, as applicable, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Issuer or its Subsidiary, as applicable, shall at any time in good faith be prosecuting an appeal or proceeding for review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured;

undetermined or inchoate Encumbrances and charges arising or potentially arising under statutory provisions which have not at the time been filed or registered in accordance with applicable Laws or of which written notice has not been duly given in accordance with applicable Laws or which although filed or registered, relate to obligations not due or delinquent;

the rights reserved to or vested in Governmental Entities by statutory provisions, and the reservation in any original grants from the Crown of any land or interests therein and statutory exceptions to title;

Encumbrances in favour of public utilities or to any municipalities or governmental or other public authorities when required by the utility, municipality, governmental or other public authority in connection with the supply of services or utilities to or from the Hydro Assets Business and Encumbrances in favour of the Alberta Electric System Operator (“AESO”), or its successor, in and to amounts owing to or required by AESO;

Encumbrances arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of combination of accounts or similar rights in the Ordinary Course of conducting day-to-day banking business in relation to deposit accounts or other funds maintained with a creditor depository institution;

Encumbrances arising from the right of distress enjoyed by landlords or liens otherwise granted to landlords, in either case, to secure the payment of arrears of rent in respect of leased properties;

Encumbrances in favour of lessors under leases and subleases of any real or personal property on arm’s length terms which do not materially interfere with the Ordinary Course of the Hydro Assets Business;

Encumbrances existing on the date hereof that are addressed in any governmental registry (“Existing Encumbrances”) to secure Purchase Money Obligations existing on the date hereof (“Existing Purchase Money Obligations”) and any replacement or extension of any Existing Purchase Money Obligations secured by such Existing Encumbrances on arm’s length terms and not exceeding the amount currently secured, including for the purpose of securing liabilities incurred to refinance any Existing Purchase Money Obligations that was the subject of any such Existing Encumbrances, provided that any such Encumbrance is limited to all or part of the same assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured the Existing Purchase Money Obligations being refinanced; or

any Encumbrance that, but for this clause, would not be a Permitted Encumbrance, if such Encumbrance has been approved by a majority of the Operating Committee.

indebtedness of a Hydro Assets Subsidiary incurred prior to any Exchange pursuant to Section 2.1 that is owed to the Issuer or any other Subsidiary of the Issuer; provided, however, that (i) all such indebtedness is expressly subordinated in right of payment to the Securities and, (ii) if any such indebtedness is owing by the Hydro Assets Owner, such indebtedness shall, prior to the time of any Exchange pursuant to Section 2.1, be discharged in full in consideration for Equity Interests in the Hydro Assets Owner;

indebtedness under an operating line of credit facility with a maximum principal amount of $10 million made available or to be made available to the Hydro Assets Owner;

any guarantee of the Issuer’s obligations under the Credit Agreement by TransAlta Generation Partnership or any other Subsidiary that owns Hydro Assets or operates the Hydro Assets Business (each a “Hydro Assets Subsidiary”); provided, however, that this shall not permit any such guarantee by the Hydro Assets Owner on or after the completion of the Hydro Assets Reorganization; and

any indebtedness that, but for this clause, would not be Permitted Indebtedness, if such indebtedness has been approved by a majority of the Operating Committee;

the terms “Agreement”, “this Agreement”, “the Agreement”, “hereto”, “hereof”, “herein”, “hereby”, “hereunder” and similar expressions refer to this Agreement in its entirety and not to any particular provision hereof;

references to an “Article”, “Section” or “Schedule” followed by a number or letter refer to the specified Article or Section of or Schedule to this Agreement;

the division of this Agreement into articles and sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement;

words importing the singular number only shall include the plural and vice versa and words importing the use of any gender shall include all genders;

the word “including” is deemed to mean “including without limitation”;

the terms “party” and “the parties” refer to a party or the parties to this Agreement;

any reference to this Agreement means this Agreement as amended, modified, replaced or supplemented from time to time;

any reference to a statute, regulation or rule shall be construed to be a reference thereto as the same may from time to time be amended, re-enacted or replaced, and any reference to a statute shall include any regulations or rules made thereunder;

all dollar amounts refer to Canadian currency;

any time period within which a payment is to be made or any other action is to be taken hereunder shall be calculated excluding the day on which the period commences and including the day on which the period ends; and

whenever any action is required to be taken or period of time is to expire on a day other than a Business Day, such action shall be taken or period shall expire on the next following Business Day.

Schedule A

-

EBITDA Calculation

Schedule B

-

Tax Deficiency Calculation

Schedule C

-

Form of Articles of Amendment

at any time after December 31, 2024;

at any time prior to December 31, 2024, if the Issuer undertakes a Permitted Hydro Asset Sale, such exercise of the Exchange Right to occur contemporaneously with the Permitted Hydro Asset Sale; or

at any time upon or following the occurrence of an Early Exchange Event.

(A) the Issuer files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors (“Bankruptcy Law”), or makes any assignment for the benefit of creditors or takes any corporate action, in each case under Bankruptcy Law, in furtherance of any of the foregoing, (B) an involuntary petition is filed against the Issuer under any Bankruptcy Law (unless such petition is dismissed or discharged within thirty (30) days), (C) a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed by a court of competent jurisdiction under any Bankruptcy Law to take possession, custody or control of any property of the Issuer, or (D) pursuant to any Bankruptcy Law, the Issuer takes any steps to, or undertakes any proposal for, the winding-up or liquidation of the Issuer, obtains an administration order, or appoints a receiver in respect of the whole or any part of the Issuer;

a default by the Issuer in the payment of, in the case of the Debentures, the principal of such Debentures, when due and payable, which default has continued without cure for a period of three (3) Business Days thereafter;

a default by the Issuer in the payment of, in the case of the Debentures, any instalment of interest on such Debentures or in the case of the Redeemable Shares, dividends on the Redeemable Shares, in each case on the date when due and payable that has continued without cure for a period of 35 days;

the occurrence of any of the Additional Early Exchange Events contained in Section 4.1; or

the occurrence of a Material Adverse Effect or Hydro Material Adverse Effect after the date hereof and prior to the Second Funding Date.

if the 20 day VWAP of the Common Shares at the time the Exchange Right is exercised is not less than $14, up to an additional 10% of the Hydro SPV Equity (provided that the maximum Hydro Equity Interest held by the Investor and its Affiliates, collectively, after giving effect thereto shall not exceed a 49% Hydro Equity Interest), or

if the 20 day VWAP of the Common Shares at the time the Exchange Right is exercised is not less than $17, that percentage of additional Hydro SPV Equity that would allow the Investor and its Affiliates, collectively, to hold 49% of the Hydro SPV Equity,

Organization. The Issuer is a corporation or other legal entity duly incorporated or organized, as applicable, validly existing and in good standing under the laws of the jurisdiction of its incorporation, organization or formation, as applicable, and has all requisite power and authority to own, lease and operate its assets and properties and conduct its business as now owned and conducted.

Authorization, Execution and Enforceability. The Issuer has the requisite corporate power and authority to enter into this Agreement to perform its obligations hereunder. This Agreement (i) has been duly authorized, (ii) has been duly executed and delivered by the Issuer, and (iii) is a valid and binding agreement of the Issuer, enforceable against the Issuer in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject to the qualification that equitable remedies may be granted in the discretion of a court of competent jurisdiction.

No Violation. The execution and delivery by the Issuer of this Agreement, and the performance by it of its obligations hereunder, including the Exchange of the Securities for the Hydro Equity Interest in accordance with the terms and conditions contained herein: (i) will not result in any violation of the provisions of the Articles or by-laws of the Issuer; (ii) will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any Material Contract or material Authorization to which the Issuer or any of its subsidiaries is a party or by which the Issuer or any of its Subsidiaries is bound; and (iii) will not, assuming compliance with the matters referred to in Section 3.1(i) of the Investment Agreement, result in any violation of the provisions of any Law or Order applicable to the Issuer or any of its Subsidiaries, except, in the case of clauses (ii) and (iii), as would not reasonably be expected to have a

Organization. It is organized and validly existing under its jurisdiction of origination or formation, with power (corporate or other) and authority to complete the transactions to be completed by it as contemplated in the Transaction Agreements.

Authorization. It has the requisite power and authority to enter into each of the Transaction Agreements to which it is a party, and to perform its obligations thereunder. Each of the Transaction Agreements to which it is a party (i) has been duly authorized, (ii) has been (or, in the case of the Registration Rights Agreement, will be) duly executed and delivered by it and (iii) is (or, in the case of the Registration Rights Agreement, will be) a valid and binding agreement of it, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject to the qualification that equitable remedies may be granted in the discretion of a court of competent jurisdiction.

No Violation. The execution and delivery by it of each Transaction Agreement to which it is a party, and the performance of its obligations thereunder, including the purchase of the Securities, does not and will not result in any violation of the (i) provisions of its constating documents or (ii) the provisions of any Law or Order applicable to it, except, in the case of clause (ii), as would not, individually or in the aggregate, reasonably be expected to materially delay or hinder the ability of such Investor to perform its obligations under the Transaction Agreements.

the Issuer or any Hydro Assets Subsidiary providing a guarantee pursuant to clause (c) of the definition of Permitted Indebtedness is in default under the terms

except for a Permitted Hydro Asset Sale after the Hydro Assets Reorganization or a Transfer to an Affiliate of the Issuer at any time prior to the Hydro Assets Reorganization, the Issuer (i) ceases to carry on the Hydro Assets Business in the Ordinary Course, (ii) materially reduces the scale of the Hydro Assets (as compared to the Hydro Assets Business on the date hereof) or (iii) makes any Divestitures of the Hydro Assets to a third party, except in each case for purposes of effecting the Hydro Assets Reorganization;

the Issuer creates, issues, incurs or assumes any (i) indebtedness for borrowed money (other than Permitted Indebtedness) of the Issuer or any of its Subsidiaries with recourse to the Hydro Assets Owner or any of the Hydro Assets, or (ii) creates, incurs, assumes or permits to exist any Encumbrances (other than Permitted Encumbrances) on the Hydro SPV Equity or on any of the Hydro Assets;

the Issuer issues Securities to any Person other than Brookfield or Investor (or any permitted assignee of Investor) or any of their respective Affiliates;

the Issuer fails to promptly provide notice to the Investor of any fact, circumstance, or event that could reasonably be expected to result in an Early Exchange Event of the type specified in Section 4.1(a);

the Issuer fails to maintain the Hydro Assets as a whole in all material respects in accordance with good industry practice, in good working order subject to ordinary wear and tear for equipment of similar age and condition; or

the Issuer fails to complete the Hydro Assets Reorganization in accordance with Section 4.10 of the Investment Agreement.

a certificate signed by two senior officers of the Investor containing a representation and warranty by the Investor in favour of the Issuer that, (i) the Investor is a Qualified Canadian Holder and, (ii) in the case of an Exchange, the Investor is the Holder of all of the Securities to be Exchanged;

in the case of an Exchange, the certificates representing the Securities to be Exchanged and such other documents and instruments as may be required to effect a transfer of such Securities under the Issuer’s and the Hydro Asset Owner’s respective governing statute and regulations, and under the Articles or other constating documents;

if a Top-Up Option has been exercised, payment in immediately available funds of the amount required to satisfy the Top-Up Option;

in the case of a True-Up Adjustment, the certificates or other documents representing the Hydro Equity Interests of the Investor that are to be transferred, together with duly executed transfer(s) in blank; and

such additional documents and instruments as the Issuer may reasonably require.

in the case of the Investor:

in the case of the Issuer:

TransAlta Corporation
[Address]

TRANSALTA CORPORATION

by

▇▇▇▇▇ ▇▇▇▇▇▇▇ (signed)

Name:          

Title:          

▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (signed)

Name:          

Title:          

EAGLE HYDRO II LP by its general

partner, EAGLE HYDRO

INVESTMENTS GP INC.

by

▇▇▇▇▇ ▇▇▇▇ (signed)

Name:          

Title:          

▇▇▇▇▇ ▇▇▇▇▇▇▇ (signed)

Name:          

Title:          

Notes:

 

A

Hydro SPV Equity Value

As defined in the Exchange and Option Agreement

 

B

Value of Assets with no Tax Depreciation

Fair market value of any non-depreciable assets determined on the date the Exchange Right is exercised

 

C

Total UCC Available

Tax pools available in the Hydro Assets Owner on the date the Exchange Right is exercised

 

D = A – B – C

UCC Deficiency

 

D

UCC Deficiency

E

CCA

Weighted average CCA rate based on the tax pools available in the Hydro Assets Owner on the date the Exchange Right is exercised

 

F

Tax Rate

Combined Alberta and Federal Tax rate on the date the Exchange Right is exercised

 

G

Discount Rate of 7%

H = ((DxExF)/(E+G))

Tax Deficiency Value

 

A

Hydro SPV Equity Value

H

Less Tax Deficiency Value

I = A – H

Tax Affected Hydro SPV Equity Value

J

Investment Amount

J/I

Investor’s ownership percentage

“Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified and for the avoidance of doubt, in the case of the Investor, “Affiliate” includes investment funds managed by Brookfield or its Affiliates but does not include any Affiliates of the Investor that operate behind an information wall erected to prevent exchanges or communication of non-public information that could result in conflicts of interest or breaches of Securities Laws.

“Articles” means the articles of amalgamation of the Corporation, as supplemented, amended or replaced from time to time.

“Board of Directors” means the board of directors of the Corporation, as constituted from time to time.

“Brookfield” has the meaning specified in the Investment Agreement.

“Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in both ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇.

“Canadian Financial Institution” means “Canadian financial institution” as defined in Section 1.1 of National Instrument 45-106 - Prospectus Exemptions.

“Cash Acceleration Event” means, subject to Section 2.3(b) of the Exchange and Option Agreement, the occurrence of an event or circumstance specified as such in Section 6(b)(ii).

“CBCA” means the Canada Business Corporations Act.

“Common Shares” means the common shares in the capital of the Corporation, as constituted from time to time.

“Corporation” means TransAlta Corporation.

Debentures” means the unsecured subordinated debenture in the principal amount of $350,000,000 issued  by the Corporation to Eagle Investment II LP on May 1, 2019 and includes any other unsecured, subordinated debentures issued by the Corporation pursuant to the Investment Agreement and having identical terms and conditions to the first debenture.

“Dividend Payment Date” means the last day of February, May, August and November, in each year; provided that, if such date is not a Business Day, the applicable Dividend Payment Date will be the next succeeding Business Day.

“Early Exchange Event” has the meaning specified in the Exchange and Option Agreement.

“Exchange” means an Exchange of the Securities as defined in and pursuant to and on the terms and conditions of the Exchange and Option Agreement.

“Exchange and Option Agreement” means the exchange and option agreement dated as of May 1, 2019 between the Corporation and the Investor.

“Exchange Right” has the meaning specified in the Exchange and Option Agreement.

“Exchange Right Approvals” means approvals of a Governmental Entity that, if not obtained, would prevent the Corporation from satisfying the Investor’s exercise of the Exchange Right; provided that, for greater certainty, such approvals do not include any Regulatory Approvals required in connection with the completion of the Hydro Assets Reorganization.

“First Preferred Shares” means the first preferred shares of the Corporation, as specified in the Articles.

“Governmental Entity” means (a) any international, multinational, national, federal, provincial, state, regional, municipal, local or other government, governmental or public department, central bank, court, tribunal, (including an independent quasi-judicial tribunal), commission or board (including any independent system operator), arbitral body, bureau, ministry, agency or instrumentality, domestic or foreign, (b) any subdivision or authority of any of the above, (c) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing or (d) any stock exchange. For the avoidance of doubt, “Governmental Entity” includes Securities Regulators (as defined in the Exchange and Option Agreement), the Alberta Utilities Commission, the Federal Energy Regulatory Commission and the North American Electric Regulatory Corporation and any applicable regional reliability entity, electric system

“Holder” in respect of Series I Preferred Shares means the Investor and at any time the Series I Preferred Shares are transferred in accordance with their terms, the Permitted Transferees in whose name the Series I Preferred Shares are registered.

“Hydro Assets Reorganization” has the meaning specified in the Exchange and Option Agreement.

“Hydro Assets Reorganization Event” has the meaning specified in the Exchange and Option Agreement.

“Investment Agreement” means the investment agreement dated as of March 22, 2019, between the Corporation and the Investor (to whom the Investment Agreement was assigned by Brookfield BRP Holdings (Canada) Inc. to the Investor on April 30, 2019), as amended, supplemented, restated, converted, exchanged or replaced from time to time.

“Investor” means Eagle Hydro II LP, a limited partnership existing under the laws of Ontario, or, at and after the time, if any, that all of the rights of the party that is the “Investor” under the Exchange and Option Agreement is assigned to a Permitted Assignee in accordance with the terms of the Exchange and Option Agreement, the Permitted Assignee to whom such rights have been so assigned.

“Liquidation Date” has the meaning specified in Section 5(a).

“Liquidation Event” has the meaning specified in Section 5(a).

“Mandatory Redemption” has the meaning specified in Section 6(f).

“Mandatory Redemption Date” has the meaning specified in Section 6(f)(ii).

“Optional Redemption” has the meaning specified in Section 6.

“Payment Date” means the Liquidation Date, Redemption Date or Mandatory Redemption Date, as applicable.

“Person” has the meaning specified in the Investment Agreement.

“Pro Rated Dividend” means the amount determined by multiplying the amount of the dividend payable for a Quarter in which a Liquidation Event, Redemption Event or Exchange is to occur by four and multiplying that product by a fraction, the numerator of which is the number of days from and including the Dividend Payment Date immediately preceding the date fixed for a Liquidation Event, conversion or redemption to but

“Quarter” means a three-month period ending on a Dividend Payment Date.

“Quarterly Commencement Date” means the last day of March, June, September and December in each year, commencing September 30, 2019.

“Quarterly Rate Period” means the period from and including a Quarterly Commencement Date to but excluding the next succeeding Quarterly Commencement Date.

“Redemption Consideration” means, in respect of a Series I Preferred Share, at any particular time, the Series I Preferred Share Subscription Price plus the amount of any accrued but unpaid dividends on that Series I Preferred Share.

“Redemption Date” means the date, if any, established by the Board of Directors in good faith in connection with the occurrence of a Redemption Event, for the redemption by the Corporation of the Series I Preferred Shares in accordance with Section 6.

“Redemption Event” means an Optional Redemption or a Mandatory Redemption.

“Securities” means these Series I Preferred Shares and the Debentures.

“Securities Laws” has the meaning specified in the Investment Agreement.

“Series I Preferred Share Subscription Price” means the subscription price paid, per share, for any Series I Preferred Share on the date of issuance, being $1,000.

“Series I Preferred Share Yield” means an amount equal to the amount accruing (subject to any deduction or withholding required by law) on a daily basis of a 365-day year in respect of an Series I Preferred Share (commencing upon the date of issuance of such Series I Preferred Share) at the Series I Preferred Share Yield Rate, on the Series I Preferred Share Subscription Price for such Series I Preferred Share. For the avoidance of doubt, (i) such Series I Preferred Share Yield shall accrue whether or not dividends have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends, and (ii) the “date of issuance” of any Series I Preferred Share shall be the date on which the Corporation initially issued such Series I Preferred Share regardless of the number of times transfer of such Series I Preferred Share is made on the share registers maintained by or for the Corporation and regardless of the number of

certificates which may be issued to evidence such Series I Preferred Share.

“Series I Preferred Share Yield Rate” means 7% per annum.

“Series I Preferred Shares” mean the Redeemable, First Preferred Shares, Series I in the capital of the Corporation, as constituted from time to time.

“Subsidiary” or “subsidiary” has the meaning specified in the Investment Agreement.

“Tax Act” means the Income Tax Act (Canada).

“Transfer” means any sale, transfer, exchange, assignment, gift, bequest, disposition, mortgage, charge, pledge, encumbrance, grant of a security interest or other arrangement by which possession, legal title or beneficial ownership passes from one Person to another, or to the same Person in a different capacity, whether or not voluntarily and whether or not for value, and any agreement to effect any of the above, but does not include the sale, exchange or redemption of any Series I Preferred Shares under these Series I Preferred Share provisions.

For purposes hereof:

a Person controls a body corporate if securities of the body corporate to which are attached more than 50% of the votes that may be cast to elect directors of the body corporate are beneficially owned by the Person and the votes attached to those securities are sufficient, if exercised, to elect a majority of the directors of the body corporate;

a Person controls an unincorporated entity, other than a limited partnership, if more than 50% of the ownership interests, however designated, into which the entity is divided are beneficially owned by that Person and the Person is able to direct the business and affairs of the entity; and

the general partner of a limited partnership controls the limited partnership.

A Person who controls an entity is deemed to control any entity that is controlled, or deemed to be controlled, by the entity.

A Person is deemed to control, within the meaning of Section 1(b)(i)(A) or Section 1(b)(i)(B), an entity if the aggregate of:

any securities of the entity that are beneficially owned by that Person; and

any securities of the entity that are beneficially owned by any entity controlled by that Person, is such that, if that Person and all of the entities referred to in Sections 1(b)(i) and 1(b)(ii) that beneficially own securities of the entity were one Person, that Person would control the entity.

The expressions “on a parity with”, “ranking prior to”, “ranking junior to” and similar expressions refer to the order of priority in the payment of dividends or in the distribution of assets in the event of any Liquidation Event.

If any day on which any dividend on the Series I Preferred Shares is payable by the Corporation or on or by which any other action is required to be taken by the Corporation is not a Business Day, then such dividend shall be payable and such other action may be taken on or by the next succeeding day that is a Business Day.

The rights and privileges attaching to the Series I Preferred Shares may be removed or changed, and the restrictions and conditions attaching to the Series I Preferred Shares may be added to or changed, only with the approval of the Investor.

For purposes of these Series I Preferred Share provisions, subject to compliance with Section 8(c) where an action is to be taken by Holders of the Series I Preferred Shares, in addition to the requirements of applicable law, if any, such action may be taken if such Holders:

pass a written resolution to such effect in accordance with the requirements of the CBCA; or

pass a resolution by the requisite majority as required by applicable law or as specified herein of votes cast on such resolution to such effect at a duly constituted meeting of such holders, voting as a single class.

On or before the Liquidation Date, the Corporation will cause to be delivered to the Holders of the Series I Preferred Shares the Redemption Consideration for each such Series I Preferred Share upon presentation and surrender of the documents specified in Section 6(h).

After the Corporation has satisfied its obligation to pay to the Holders of Series I Preferred Shares the full amount of the Redemption Consideration pursuant to Section 6(b)(i), such Holders are not entitled to share in any further distribution of the assets of the Corporation.

Subject to applicable law, at any time after December 31, 2028 that the Board of Directors has authorized the Corporation to redeem Series I Preferred Shares, the Corporation shall have the right to redeem (an “Optional Redemption”) on the Redemption Date all or any part of the

then outstanding Series I Preferred Shares for the Redemption Consideration as of the last Business Day prior to the Redemption Date for each Series I Preferred Share, provided that each such redemption, other than an Optional Redemption that is to redeem the balance of the outstanding Series I Preferred Shares, must be for an amount of Redemption Consideration that is, when added to the consideration from all Redemption Consideration paid by the Corporation for all the Securities being redeemed by the Corporation concurrently with the Series I Preferred Shares from the holder thereof, is not less than $100,000,000 in the aggregate.

In the event of an Optional Redemption of less than all of the Securities, the Corporation shall within thirty-six months of the first Optional Redemption have redeemed all of the then outstanding Securities.

Any Optional Redemption or Optional Redemption Notice may, at the Corporation’s discretion, be subject to one or more conditions precedent, including, but not limited to, completion of an equity or other offering, issuance of indebtedness, or other corporate transaction or event. Notice of any redemption in respect thereof will be given prior to the completion thereof and may be partial as a result of only some of the conditions being satisfied. If an Optional Redemption is subject to the satisfaction of one or more conditions precedent, the related Optional Redemption Notice shall describe each such condition, and if applicable, state that, in the Corporation’s discretion, the Optional Redemption Date may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied or waived by the Optional Redemption Date; provided that any failure of the Issuer to include such information in the applicable Optional Redemption Notice shall not impact the Corporation’s right to rescind the Optional Redemption Notice if the applicable condition precedents are not satisfied.

Upon the occurrence of a Cash Acceleration Event, the Corporation shall redeem all but not less than all of the then outstanding Series I Preferred Shares. If such redemption would be contrary to solvency requirements or other provisions of applicable law, the Corporation will redeem Series I Preferred Shares in accordance with these share provisions on a pro rata basis and will issue to each Holder of Series I Preferred Shares a new certificate, at the expense of the Corporation, representing the Series I Preferred Shares of that Holder not redeemed by the Corporation.

The occurrence of any one or more of the following events or circumstances shall constitute a “Cash Acceleration Event”:

provided that the Hydro Assets Reorganization is completed in the manner described in the Investment Agreement, any Exchange Right Approvals are not obtained on terms acceptable to the Investor and the Corporation, each acting reasonably; or

a final and non-appealable order is issued by a court of competent jurisdiction that enjoins the satisfaction of the Exchange Right.

Notwithstanding anything contained in the Series I Preferred Share terms to the contrary, the Investor’s right to accelerate the Corporation’s payment obligations pursuant to and on the terms and conditions provided therefor in this Section 6(b) shall be the sole and exclusive remedy for any Cash Acceleration Event.  No other right or remedy in respect of any Cash Acceleration Event shall be available to the Investor or the Holder under the Series I Preferred Share terms.  For greater certainty, nothing herein shall restrict the exercise of any rights or remedies of the Investor in respect of the Investment Agreement.

declare, pay or set apart for payment any dividends (other than stock dividends in shares of the Corporation ranking junior to the Series I Preferred Shares) on the Common Shares or any other shares of the Corporation ranking junior to the Series I Preferred Shares with respect to payment of dividends; or

call for redemption of, purchase, reduce the stated capital maintained by the Corporation or otherwise pay for any shares of the Corporation ranking junior to the Series I Preferred Shares with respect to repayment of capital or with respect to payment of dividends;

In the case of a redemption of Series I Preferred Shares under Section 6(a), the Corporation shall send or cause to be sent to each Holder of Series I Preferred Shares a notice in writing of the intention of the Corporation to redeem the Series I Preferred Shares held by such Holder (the “Optional Redemption Notice”) on not less than fifteen (15) days nor more than thirty (30) days after the date on which such prior written notice is given.

Such notice must set out the number of Series I Preferred Shares being redeemed, the Redemption Consideration and the Redemption Date.

Upon the occurrence of a Cash Acceleration Event with respect to Series I Preferred Shares, the Corporation shall within five (5) Business Days of becoming aware of the occurrence of the Acceleration Event deliver written notice thereof (an “Acceleration Event Notice”) to the Investor; provided, however, that failure to provide an Acceleration Event Notice shall not diminish or otherwise affect the rights and remedies of the Investor hereunder.

At any time after the date on which a Cash Acceleration Event occurs, the Investor may require the Corporation to redeem all and not less than all of its Series I Preferred Shares by delivering written notice thereof (a “Cash Acceleration Notice”) to the Corporation. If a Cash Acceleration Notice is delivered by the Investor pursuant to this Section 6(f)(ii), (i) the Series I Preferred Shares shall be redeemed by the Corporation, on a date fixed by the Corporation (the “Mandatory Redemption Date”) which shall not be later than thirty (30) days after the Corporation’s receipt of such Cash Acceleration Notice, at a price equal to the Redemption Consideration (the “Mandatory Redemption Price”) and (ii) the Corporation shall pay the Mandatory Redemption Price to the Holder in cash in accordance with Section 6(h) on the Mandatory Redemption Date, unless such Cash Acceleration Notice has been rescinded prior to the Mandatory Redemption Date therefor in accordance with Section 6(g).

A Cash Acceleration Notice shall be irrevocable; provided, however, that the Investor may rescind and annul a Cash Acceleration Notice, and the corresponding consequences thereof, by providing written notice thereof to the Corporation not more than 5 Business Days after the Investor has delivered such Cash Acceleration Notice (and at least 5 Business Days prior to the applicable Mandatory Redemption Date) or at such later time as is agreed by the Corporation.  Any such written notice from the Investor rescinding a Cash Acceleration Notice shall be deemed an irrevocable waiver by the Investor of its right to cause the Corporation to redeem the Series I Preferred Shares as a result of the Cash Acceleration Event that is the subject of such Cash Acceleration Notice.

The Investor may, by written notice to the Corporation, waive any default and its consequences under the Series I Preferred Shares.

On the Payment Date the Corporation will cause to be delivered to the Holders of the Series I Preferred Shares to be redeemed the Redemption Consideration for each such Series I Preferred Share, upon presentation and surrender by each Holder of the documents specified in 6(h)(ii) below.

On or prior to the Payment Date, the Investor shall deliver or cause to be delivered to the Corporation, the following:

a certificate signed by two senior officers of the Holder containing a representation and warranty by such Holder in favour of the Corporation that such Holder:

is not a non-resident of Canada for purposes of the Tax Act; or

if a partnership, is a “Canadian partnership” as defined in section 102 of the Tax Act;

the certificates representing the Series I Preferred Shares to be exchanged for the Redemption Consideration;

such other documents and instruments as may reasonably be required to effect a redemption of such Series I Preferred Shares under the Corporation’s governing statute and regulations and these Articles; and

such additional documents and instruments as the Corporation may reasonably require.

Payment shall, subject to Section 11, be made by cheque payable at par at any branch of the Corporation’s bankers in Canada.

If a part only of the Series I Preferred Shares presented by any certificate shall be redeemed on an Optional Redemption, a new certificate for the balance shall be issued at the expense of the Corporation. From and after the date specified in any such notice, the Series I Preferred Shares called for redemption shall cease to be entitled to dividends and the holders shall not be entitled to exercise any of the rights of holders in respect thereof unless payment of the cash redemption price shall not be made upon presentation of certificates in accordance with the foregoing provisions, in which case the rights of the holders shall remain unaffected. The Corporation shall have the right, at any time after the mailing of notice of its intention to redeem any Series I Preferred Shares, to deposit the cash redemption price of the shares so called for redemption, or of such of the shares represented by certificates that have not at the date of such deposit been surrendered by the holders in connection with such redemption, to a special account in any chartered bank or any trust company in Canada named in such notice, to be paid without interest to or to the order of the respective holders of such Series I Preferred Shares called for redemption upon presentation and surrender to such bank or trust company of the certificates representing such shares. Upon such deposit being made or upon the date specified for redemption in such notice, whichever is the later, the Series I Preferred Shares in respect of which such deposit shall have been made shall then be and be deemed to be redeemed and shall be cancelled and the rights to the holders after such deposit or such Redemption Date shall be limited to receiving

without interest their proportionate part of the total cash redemption price so deposited against presentation and surrender of the certificates held by them respectively. Any interest allowed on any such deposit shall belong to the Corporation and any unclaimed funds remaining on deposit on the sixth anniversary date of the redemption shall be returned to the Corporation. Subject to such provisions of the CBCA as may be applicable, in case a part only of the then outstanding Series I Preferred Shares is at any time to be redeemed, the shares so to be redeemed shall be selected by lot in such manner as the Board of Directors or the transfer agent and registrar, if any, appointed by the Corporation in respect of such shares shall decide or if the Board of Directors so decides, such shares may be redeemed pro rata (disregarding fractions).

No Holder of Series I Preferred Shares may Transfer any Series I Preferred Shares without the prior written consent of the Corporation, which consent may be withheld in its sole discretion; provided, however, that, subject to Sections 8(b)(ii), (iii) and (iv) of these Series I Preferred Shares, (i) the Holder may Transfer Series I Preferred Shares to an Affiliate of the Investor without the consent of the Corporation, but only for so long as such Affiliate remains an Affiliate of the Investor (a “Permitted Transferee”) and (ii) a Holder may grant a security interest on Series I Preferred Shares favour of one or more Canadian Financial Institutions to secure indebtedness for borrowed money owed by the Holder to such Canadian Financial Institutions under a bona fide credit facility (a

If a Holder of Series I Preferred Shares ceases to be an Affiliate of the Investor, such Holder shall immediately Transfer its Series I Preferred Shares back to the Investor or an Affiliate of the Investor, and for so long as the Holder is in breach of this Section 8(b)(ii), all of the Holder’s rights under these Series I Preferred Shares shall be suspended and the Corporation shall have no obligation to make any payments to the Holder.

As a condition to any Transfer of Series I Preferred Shares, the Corporation may, among other things, require the transferor to (i) pay the Corporation an amount to reimburse the Corporation for any transfer taxes, similar governmental charges or other fees required to be paid by the Corporation in connection with such Transfer, (ii) furnish the Corporation with due endorsements by, or a written instrument of transfer in form satisfactory to the Corporation duly executed by, the transferor, (iii) provide the name, addresses and other details for payment of the Permitted Transferees and (iv) provide the Corporation with evidence, including, if the Corporation requires, one or more legal opinions, satisfactory to the Corporation confirming that the applicable Transfer complies with applicable securities laws, including Securities Laws.

Form and Dating.  Series I Preferred Shares shall be in certificated form (“Certificated Series I Preferred Shares”). Each Series I Preferred Share certificate shall be dated the date of its execution.

Execution.  Two officers shall sign each Series I Preferred Share certificate for the Corporation by manual or facsimile signature.

Transfer and Exchange.  When a Certificated Series I Preferred Share is presented to the Corporation with a request to register the Transfer of such Certificated Series I Preferred Share or to exchange such Certificated Series I Preferred Share for an equal number of shares of Certificated Series I Preferred Shares evidenced by more than one certificate, the Corporation shall register the Transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Certificated Series I Preferred Shares surrendered for Transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Corporation, duly executed by the holder thereof or its attorney duly authorized in writing.

Legends.  Each certificate evidencing Certificated Series I Preferred Shares shall bear legends in substantially the following form:

Replacement Certificates.  If any of the Series I Preferred Shares certificates shall become mutilated, lost, stolen or destroyed, the Corporation shall issue, in exchange and in substitution for and upon cancellation of the mutilated Series I Preferred Shares certificate, or in lieu of and substitution for the Series I Preferred Shares certificate lost, stolen or destroyed, a new Series I Preferred Share certificate of like tenor and representing an equivalent amount of shares of Series I Preferred Shares, but only upon receipt of evidence of such loss, theft or destruction of such Series I Preferred Shares certificate and indemnity, if requested, satisfactory to the Corporation.

Cancellation.  In the event the Corporation shall purchase or otherwise acquire Certificated Series I Preferred Shares, the same shall thereupon be delivered to the Corporation for cancellation. The Corporation and no one else shall cancel and destroy all Series I Preferred Shares certificates surrendered for transfer, exchange, replacement or cancellation. The Corporation may not issue new Series I Preferred Shares certificates to replace Series I Preferred Shares certificates to the extent they evidence Series I Preferred Shares which the Corporation has purchased or otherwise acquired.