No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. These securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the 1933 Act ), or the securities laws of any state. Accordingly, these securities may not be offered or sold, directly or indirectly, within the United States of America, its possessions and other areas subject to its jurisdictions or to, or for the account of, a U.S. Person (as defined in Regulation S under the 1933 Act), except in limited circumstances. See Plan of Distribution. Information has been incorporated by reference in this short form prospectus from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the secretary of Boralex Inc. at 772 Sherbrooke Street West, Suite 200 Montréal, Québec H3A 1G1, telephone: (514) 284-9890, and are also available electronically at www.sedar.com. SHORT FORM PROSPECTUS New Issue September 8, 2010 BORALEX INC. $95,000,000 6.75% Extendible Convertible Unsecured Subordinated Debentures This short form prospectus qualifies the distribution of $95,000,000 aggregate principal amount of 6.75% extendible convertible unsecured subordinated debentures (the Debentures ) of Boralex Inc. ( Boralex or the Corporation ) at a price of $100 per $100 principal amount of Debentures (the Offering ). The Debentures have a maturity date (the Maturity Date ) that will initially be December 31, 2010 (the Initial Maturity Date ). If the take-up of Units (as defined herein), which together with the Class B LP Units (as defined herein) owned by Boralex and its joint actors represent at least 66 2/3% of the outstanding Units (calculated on a fully-diluted basis), under the Offer to Purchase (as defined herein) by Boralex, or by 7503679 Canada Inc. ( Subco ), a wholly-owned subsidiary of Boralex (the Take-up ), takes place on or prior to 5:00 p.m. (Toronto time) on December 31, 2010, the Debentures will automatically be extended from the Initial Maturity Date to June 30, 2017 (the Final Maturity Date ). If the Take-up does not occur prior to 5:00 p.m. (Toronto time) on the Initial Maturity Date, the Offer to Purchase is terminated at an earlier time or Boralex advises the Underwriters or announces to the public that it does not intend to proceed with the Take-up (in each case, a Termination Date ), the Maturity Date will remain the Initial Maturity Date. The Debentures bear interest at an annual rate of 6.75% payable semi-annually, in arrears, on June 30 and December 31 in each year commencing on December 31, 2010 (an Interest Payment Date ). Notwithstanding the foregoing, the Corporation may elect to have one or more special interest payment dates (each, a Special Interest Payment Date ) before December 31, 2010, by sending a notice to the Debenture Trustee (as defined herein) to that effect. Further particulars concerning the attributes of the Debentures are set out under Certain Information Concerning Boralex and the Debentures Debentures. On May 18, 2010, Subco offered to purchase upon the terms and subject to the conditions of the offer to purchase and the accompanying take-over bid circular dated May 18, 2010 (as amended by notice of extension dated June 28, 2010, by notice of extension and variation dated July 17, 2010, by notice of extension dated July 30, 2010, by notice of extension dated August 13, 2010 and by notice of extension and variation dated August 31, 2010, the Offer to Purchase ), all of the issued and outstanding trust units (the Units ) of Boralex Power Income Fund (the Fund ), including Units issuable upon the conversion, exchange or exercise of any securities that are convertible into or exchangeable or exercisable for Units, except for all of the outstanding Class B limited partnership units of Boralex Power Limited Partnership (the Partnership ) together with the special voting units of the Fund associated therewith (collectively, the Class B LP Units ) (the Acquisition ). The Take-up is expected to occur on or about September 15, 2010. See Recent Developments - The Acquisition. The terms and offering price of the Debentures were determined by negotiation between the Corporation and TD Securities Inc., CIBC World Markets Inc., National Bank Financial Inc., RBC Dominion Securities Inc., Scotia Capital Inc., Canaccord Genuity Corp., Desjardins Securities Inc., GMP Securities L.P., Macquarie Capital Markets Canada Ltd. and Cormark Securities Inc. (collectively, the Underwriters ). See Plan of Distribution. National Bank Financial Inc. is a wholly-owned indirect subsidiary of a Canadian chartered bank that is currently a lender to the Corporation. Furthermore, in connection with the Acquisition, TD Securities Inc. acts as financial advisor to the Corporation. Consequently, the Corporation may be considered a connected issuer of National Bank Financial Inc. and TD Securities Inc. under applicable securities laws in certain Canadian provinces. See Relationship Between the Corporation and Certain Underwriters. #1814360.11 (cover continued on next page)
Debenture Conversion Privilege Each Debenture will be convertible into Common Shares at the option of the holder at any time prior to the close of business on the earlier of the Final Maturity Date and the business day immediately preceding the date fixed for redemption of the Debentures at a conversion price of $12.50 per Common Share (the Conversion Price ), being a conversion rate of approximately 8.0 Common Shares for each $100 principal amount of Debentures subject to adjustment in accordance with the trust indenture governing the terms of the Debentures. Holders converting their Debentures will receive accrued and unpaid interest thereon for the period from the last Interest Payment Date on their Debentures, to, but not including, the date of conversion. Further particulars concerning the conversion privilege, including provisions for the adjustment of the Conversion Price, are set out under Certain Information Concerning Boralex and Debentures Debentures - Conversion Privilege. The Debentures may not be redeemed by the Corporation on or before September 30, 2013 (except in certain limited circumstances following a Change of Control). After September 30, 2013 and prior to September 30, 2015, the Debentures may be redeemed by the Corporation, in whole or in part from time to time, at the option of Boralex on not more than 60 days and not less than 30 days prior notice at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the Common Shares on the Toronto Stock Exchange (the TSX ) during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the Conversion Price. On and after September 30, 2015, the Debentures may be redeemed in whole or in part from time to time at the option of Boralex at a price equal to their principal amount plus accrued and unpaid interest. On redemption or at maturity, Boralex will repay the indebtedness represented by the Debentures by paying to the Debenture Trustee in lawful money of Canada an amount equal to the aggregate principal amount of the outstanding Debentures, which are to be redeemed or which have matured, together with accrued and unpaid interest thereon. Boralex may, at its option, on not more than 60 and not less than 40 days prior notice, subject to applicable regulatory approval and provided no Event of Default (as defined herein) has occurred and is continuing, elect to satisfy its obligation to pay the principal amount of the Debentures, which are to be redeemed or the principal amount of the Debentures, which are due on the Final Maturity Date, by issuing freely tradeable Common Shares to the holders of the Debentures. Any accrued and unpaid interest thereon will be paid in cash. The number of Common Shares to be issued will be determined by dividing the aggregate principal amount of the outstanding Debentures which are to be redeemed or which have matured by 95% of the volume weighted average trading price of the Common Shares on the TSX during the 20 consecutive trading days ending on the fifth trading day preceding the date fixed for redemption or the Final Maturity Date, as the case may be. No fractional Common Shares will be issued on redemption or maturity but in lieu thereof Boralex shall satisfy fractional interests by a cash payment equal to the Current Market Price (as defined herein) of any fractional interest. Further particulars of the interest, redemption, repurchase and maturity provisions of the Debentures are set out under Certain Information Concerning Boralex and the Debentures Debentures. There is currently no market through which the Debentures may be sold and purchasers may not be able to resell Debentures purchased under this prospectus. This may affect the pricing of the Debentures in the secondary market, the transparency and availability of trading prices, the liquidity of the Debentures, and the extent of issuer regulation. See Risk Factors. The TSX has conditionally approved the listing of the Debentures and the Common Shares issuable on conversion, redemption or maturity of the Debentures offered under this short form prospectus. Listing is subject to Boralex fulfilling all of the requirements of the TSX on or before November 24, 2010. It is expected that the Debentures will trade on the TSX under the same ticker/cusip as the Acquisition Consideration Debentures (as defined herein). The Common Shares into which the Debentures are convertible are listed and posted for trading on the TSX under the symbol BLX. On August 24, 2010, the last trading day prior to the announcement of the Offering, the closing price of a Common Share on the TSX was $7.77. 2 (cover continued on next page)
Price: $100 per Debenture Price to the Public Underwriters Fee (1) Net Proceeds to the Corporation (2) Per Debenture... $100 $4 $96 Total Debentures (3)... $95,000,000 $3,800,000 $91,200,000 Notes: (1) The Underwriters fee with respect to the Debentures is payable in full upon closing of the Offering and represents 4% of the aggregate principal amount of Debentures. (2) After deducting the Underwriters fee but before deducting the expenses of the Offering, which are estimated to be approximately $500,000. (3) The Corporation has granted the Underwriters an option (the Over-Allotment Option ), exercisable in whole or in part at any time until 30 days following the Closing Date, to purchase at the offering price additional Debentures to cover over-allotments, if any. The principal amount of Debentures to be purchased pursuant to the Over-Allotment Option shall not exceed 15% of the principal amount of Debentures issued pursuant to the Offering. If the Over-Allotment Option is exercised in full, the total offering price to the public, the Underwriters fee and the net proceeds to the Corporation will be $109,250,000, $4,370,000 and $104,880,000, respectively. This short form prospectus also qualifies the grant of the Over-Allotment Option and the distribution of the Debentures offered upon the exercise of such option. A purchaser who acquires Debentures forming part of the over-allotment position acquires such Debentures under this short form prospectus regardless of whether the over-allotment position is filled through the exercise of the Over- Allotment Option or secondary market purchases. See Plan of Distribution. Underwriters Position Maximum size Exercise Period Exercise Price Over-Allotment Option $14,250,000 Exercisable for a period of 30 days following the closing of the Offering $100 per Debenture The Underwriters, as principals, conditionally offer the Debentures, subject to prior sale, if, as and when issued by Boralex and accepted by the Underwriters in accordance with the conditions contained in the Underwriting Agreement referred to under Plan of Distribution, and subject to the approval of certain legal matters in Canada on behalf of Boralex by Fraser Milner Casgrain LLP, and on behalf of the Underwriters by Stikeman Elliott LLP. Subject to applicable laws, the Underwriters may, in connection with the Offering, over-allot or effect transactions which stabilize or maintain the market price of the Debentures at levels other than those which might otherwise prevail on the open market. Such transaction, if commenced, may be discontinued at any time. The Underwriters propose to offer the Debentures initially at the offering price. After the Underwriters have made reasonable efforts to sell all of the Debentures under this short form prospectus at such price, the offering price may be decreased, and further changed from time to time, to an amount not greater than the offering price. However, in no event will the Corporation receive less than net proceeds of $96 per Debenture. See Plan of Distribution. Subscriptions for Debentures will be received subject to rejection or allotment in whole or in part, and the Underwriters reserve the right to close the subscription books at any time without notice. The Debentures will be issued in book-entry form through the facilities of CDS Clearing and Depository Services Inc. ( CDS ). Except as otherwise stated herein, holders of beneficial interests in the Debentures will not have the right to receive physical certificates evidencing their ownership of Debentures. The closing of the Offering is expected to occur on or about September 15, 2010, or such other date as the Corporation and the Underwriters may agree but in any event not later than October 8, 2010 (the Closing Date ). The pro forma earnings coverage ratios for the Corporation for the year ending December 31, 2009 and the sixmonth period ended June 30, 2010, after giving effect to the Offering and the Acquisition, are less than one-to-one. Adjusted for Specific Items (as defined herein), the pro forma adjusted earnings coverage ratio, after giving effect to the Offering and the Acquisition, is 1.16 for the year ended December 31, 2009 and 0.98 for the six-month period ended June 30, 2010. See Earnings Coverage Ratio. The head office of Boralex Inc. is located at 36 Lajeunesse Street, Kingsey Falls, Québec J0A 1B0. The registered office of the Corporation is located at 772 Sherbrooke Street West, Suite 200, Montréal, Québec, H3A 1G1. An investment in the Debentures involves certain risks that are described in the Risk Factors section of, and elsewhere in, this prospectus, including in the documents incorporated herein by reference and should be considered by any prospective purchaser of the Debentures. 3
TABLE OF CONTENTS Page FORWARD-LOOKING STATEMENTS...1 FINANCIAL INFORMATION AND CURRENCY...1 DOCUMENTS INCORPORATED BY REFERENCE...2 ELIGIBILITY FOR INVESTMENT...3 THE CORPORATION...3 THE FUND...4 RECENT DEVELOPMENTS...5 EFFECT OF THE ACQUISITION ON THE CORPORATION...9 USE OF PROCEEDS...12 CERTAIN INFORMATION CONCERNING BORALEX AND THE DEBENTURES...12 CONSOLIDATED CAPITALIZATION...20 PRIOR SALES...20 PRICE RANGE AND TRADING VOLUMES OF THE COMMON SHARES...20 EARNINGS COVERAGE RATIO...21 RELATIONSHIP BETWEEN THE CORPORATION AND CERTAIN UNDERWRITERS...23 PLAN OF DISTRIBUTION...23 CANADIAN FEDERAL INCOME TAX CONSIDERATIONS...24 RISK FACTORS...28 LEGAL MATTERS AND INTEREST OF EXPERTS...32 PURCHASERS STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION...32 AUDITORS, TRANSFER AGENT AND REGISTRAR...33 GLOSSARY OF TERMS...34 AUDITOR S CONSENT... A-1 AUDITOR S CONSENT... A-2 SCHEDULE A PRO FORMA FINANCIAL STATEMENTS... F-1 CERTIFICATE OF THE CORPORATION...C-1 CERTIFICATE OF THE UNDERWRITERS...C-2 i
FORWARD-LOOKING STATEMENTS This short form prospectus, including documents incorporated by reference herein, contains forwardlooking information within the meaning of applicable securities laws. All information and statements other than statements of historical facts contained in this short form prospectus are forward-looking information. Such statements and information may be identified by looking for words such as about, approximately, may, believe, expects, will, intends, should, plan, predict, potential, projects, anticipates, estimates, continues or similar words or the negative thereof or other comparable terminology. Such forwardlooking information includes, without limitation, statements with respect to: the anticipated benefits of the Acquisition, the future financial position, growth prospects, business strategy and plans, and objectives of or involving the Corporation following the Acquisition; capital expenditures and investment programs; access to credit facilities and financing; capital taxes; income taxes; risk profile; cash flows and earnings and the components thereof; future income tax treatment following the Acquisition; the effective time of the Acquisition; the satisfaction of conditions for listing on the TSX and the timing thereof; statements with respect to levels of distributions and dividends to be paid to securityholders, dividend policy, and the timing of payment of such distributions and dividends. Actual events or results may differ materially. This forward-looking information is subject to important assumptions, including the following specific assumptions: the ability of the Fund or Boralex to meet their respective revenue targets; the ability to achieve cost synergies; the completion of the Acquisition in accordance with its terms; general industry and economic conditions; changes in the Fund s and Boralex s relationships with their customers and suppliers; pricing pressures and other competitive factors; and changes in regulatory requirements affecting the businesses of the Fund and Boralex. The Corporation has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking information. While the Corporation considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Since forward-looking information addresses future events and conditions, by its very nature it involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, failure to satisfy the conditions of the Acquisition; risks related to any inefficiencies with the structure of the Fund or Boralex, their respective tax treatments and any costs associated with reorganizing the Fund following closing of the Acquisition; Boralex may not have sufficient funds to repay the Debentures in cash at maturity; general economic and business conditions; financing risk; risks inherent in the business of operating the Fund or Boralex, including the inability to attract and retain qualified employees; competition; disruptions in business operations; interest rate and foreign currency fluctuations; existing governmental regulations and changes in, or the failure to comply with, governmental regulations; and liability and other claims asserted against Boralex or the Fund. Readers should carefully review and consider the risk factors described under the section Risk Factors. The information contained in this short form prospectus, including the documents incorporated by reference herein, identifies additional factors that could affect the operating results and performance of the Corporation. Prospective investors are urged to carefully consider those factors. The reader is further cautioned that the preparation of financial statements, including pro forma financial statements, in accordance with Canadian GAAP requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information contained herein is made as of the date of this short form prospectus (or, in the case of information contained in a document incorporated by reference herein, as of the date of such document), and the Corporation undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent or otherwise, unless required by applicable securities laws. FINANCIAL INFORMATION AND CURRENCY The consolidated financial statements of the Corporation and the Fund and the unaudited pro forma consolidated financial information on the Combined Entity incorporated by reference or included in this short form prospectus are reported in Canadian dollars and have been prepared in accordance with Canadian GAAP. Except as 1
otherwise indicated, all dollar amounts in this short form prospectus are expressed in Canadian dollars and references to $ are to Canadian dollars. DOCUMENTS INCORPORATED BY REFERENCE The following documents of the Corporation, filed with the various securities commissions or similar authorities in the provinces of Canada, are specifically incorporated by reference into and form an integral part of this short form prospectus: a) the Corporation s Annual Information Form dated March 23, 2010 for the year ended December 31, 2009 (the AIF ); b) the restated audited consolidated balance sheets of the Corporation as at December 31, 2009 and 2008 and the consolidated statements of earnings, retained earnings, comprehensive income (loss) and cash flows for the years then ended, together with the notes thereto, the auditors report thereon and the restated management s discussion and analysis in respect thereof; c) the unaudited consolidated balance sheet of the Corporation as at June 30, 2010 and the consolidated statements of earnings, retained earnings, comprehensive income (loss) and cash flows for the three and six month periods ended June 30, 2010 and 2009, together with the notes thereto and the management s discussion and analysis in respect thereof; d) the Corporation s management information circular dated March 15, 2010 prepared in connection with the 2010 meeting of shareholders held on May 11, 2010; e) the Corporation s material change report filed on Form 51-102F3 dated May 3, 2010, announcing that the Corporation had entered into a definitive support agreement with the Fund pursuant to which Boralex, directly or indirectly through one of its wholly-owned subsidiaries, offered to acquire by way of take-over bid all of the issued and outstanding trust units in the capital of the Fund; f) the Corporation s material change report filed on Form 51-102F3 dated March 15, 2010, announcing that the Corporation has refinanced Phase I (40 MW) of its Thames River wind farm and obtained financing for Phase II (50 MW) of the same site; g) the Corporation s material change report filed on Form 51-102F3 dated August 25, 2010, announcing that (i) the Corporation has amended its Offer to Purchase; (ii) Unitholders representing approximately 9% of the issued and outstanding Units, on a fully-diluted basis, have entered into lock-up agreements with Boralex; and (iii) Boralex entered into an agreement with a syndicate of underwriters, led by TD Securities Inc., pursuant to which the underwriters agreed to purchase, on a bought deal basis, the Debentures; h) the Corporation s material change report filed on Form 51-102F3 dated August 26, 2010 and September 1, 2010, announcing that the Corporation (i) has increased its previously announced bought deal financing of Debentures with a syndicate of underwriters led by TD Securities Inc. for gross proceeds of $95,000,000 and (ii) has filed with Canadian securities regulatory authorities and the U.S. Securities Exchange Commission, and commenced mailing to Unitholders, a notice of extension and variation and amended letter of acceptance and transmittal formally extending the Offer to Purchase. The following documents of the Fund, filed with the various securities commissions or similar authorities in the provinces of Canada, are specifically incorporated by reference into and form an integral part of this short form prospectus: 2
a) the audited consolidated balance sheets of the Fund as at December 31, 2009 and 2008 and the consolidated statements of earnings, deficit, comprehensive income (loss) and cash flows for the years then ended, together with the notes thereto and the auditors report thereon; b) the unaudited consolidated balance sheet of the Fund as at June 30, 2010 and the consolidated statements of earnings (loss), deficit, comprehensive income (loss) and cash flows for the three and six month periods ended June 30, 2010 and 2009, together with the notes thereto. Any documents of the type described in Section 11.1 of Form 44-101F1 of National Instrument 44-101 Short Form Prospectus Distributions filed by the Corporation with a securities commission or similar authority in any of the provinces of Canada after the date of this prospectus and prior to the termination of the Offering, shall be deemed to be incorporated by reference into this prospectus. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purposes of this short form prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is, or is deemed to be, incorporated by reference herein modifies or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this short form prospectus. ELIGIBILITY FOR INVESTMENT In the opinion of Fraser Milner Casgrain LLP, counsel to the Corporation, and Stikeman Elliott LLP, counsel to the Underwriters, subject to the qualifications and assumptions discussed under the heading Certain Canadian Federal Income Tax Considerations, provided the Debentures and the Common Shares are listed on a designated stock exchange (which currently includes the TSX), the Debentures and the Common Shares issuable on the conversion, redemption or maturity of the Debentures will, on the date of closing of the Offering, be qualified investments under the Tax Act for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans (except, in the case of the Debentures, a deferred profit sharing plan to which the Corporation, or an employer that does not deal at arm s length with the Corporation, has made a contribution), registered education savings plans, registered disability savings plans and tax-free savings accounts ( TFSA ). Notwithstanding the foregoing, if the Debentures or the Common Shares are prohibited investments for the purposes of a TFSA, a holder of such account will be subject to a penalty tax as set out in the Tax Act. Debentures and Common Shares will generally be prohibited investments if the holder of a TFSA does not deal at arm s length with the Corporation for the purposes of the Tax Act or the holder of a TFSA has a significant interest (within the meaning of the Tax Act) in the Corporation or a corporation, partnership or trust with which the Corporation does not deal at arm s length for the purposes of the Tax Act. Holders of a TFSA should consult their own tax advisors in this regard. THE CORPORATION Boralex was incorporated on November 9, 1982 under the Canada Business Corporations Act ( CBCA ). The head office of Boralex is located at 36 Lajeunesse Street, Kingsey Falls, Québec, J0A 1B0. Boralex also has administrative offices located at 772 Sherbrooke Street West, Suite 200, Montréal, Québec, H3A 1G1. Boralex is a major independent electricity producer whose core business is the development and operation of power stations that run on renewable energy. It owns and operates 28 power stations with a total installed capacity of 410 MW in Canada, the Northeastern United States and France. Also, Boralex has close to 300 MW of energy projects in 3
development. Boralex is distinguished by its diversified expertise and in-depth experience in three power generation segments: wind (13 sites, 152 MW), hydroelectric (8 sites, 40 MW) and thermal (7 sites, 218 MW). Boralex holds a 23% interest in the Fund, which has ten power stations with a total installed capacity of 190 MW in Québec and the United States. These sites are managed by Boralex Power Inc. ( Boralex Power ), a wholly owned subsidiary of Boralex. Boralex employs a multidisciplinary team of over 300 employees, including a management team with a high level of expertise in the acquisition, development, construction, operation and management of power stations. Boralex also manages under contract three hydroelectric power stations owned by RSP Hydro Trust, having a total capacity of 12.6 MW. THE FUND The Fund is an unincorporated open-ended limited purpose trust established by a trust indenture dated December 20, 2001 under the Laws of the Province of Québec (the Trust Agreement ). The Fund has no employees and is administered by Boralex Power. Boralex Power also manages the operating assets located in the Province of Québec, Canada. Boralex Hydro Operations Inc., an indirectly whollyowned subsidiary of Boralex, manages the Fund s operating assets located in the State of New York, USA. Boralex also managed the Dolbeau facility during the temporary resumption of operations from November 26, 2009 until April 2, 2010. The registered office of the Fund is located at 36 Lajeunesse Street, Kingsey Falls, Québec J0A 1B0 and its principal office is located at 772 Sherbrooke Street West, Suite 200, Montréal, Québec, H3A 1G1. The authorized capital of the Fund consists of an unlimited number of Units. Each Unit is transferable and represents a Unitholder s proportionate undivided ownership interest in the Fund. All units of the Fund, except for the Special Voting Unit, will be of the same class with equal rights and privileges. No Unitholder has or is deemed to have any right of ownership in any of the assets of the Fund. Each Unit confers the right to one vote at any meeting of Unitholders and to participate equally and rateably in any distributions by the Fund and, in the event of any mandatory distribution of all of the property of the Fund, in the net assets of the Fund remaining after satisfaction of all liabilities. Units are freely transferable. As of August 30, 2010, the capital of the Fund was composed of 45,300,002 issued and outstanding Units and one Special Voting Unit (representing 13,767,990 issued and outstanding Class B LP Units). The outstanding Units are listed on the TSX under the trading symbol BPT.UN. The Fund, directly through Boralex Power Trust, and indirectly through the Partnership, owns an interest in ten power generating facilities located in the Province of Québec, Canada and in the State of New York, USA, consisting of seven hydro facilities, two biomass facilities and one gas-fired facility. Each of the facilities was designed to operate continuously, shutting down only periodically for scheduled maintenance. To minimize revenue losses during shut-down periods, maintenance schedules are planned to coincide with curtailment periods or, in certain circumstances, during the summer when demand for electricity is generally lower. All of the Québec facilities supply electricity to Hydro-Québec pursuant to a Power Purchase Agreement with Hydro-Québec (the PPAHQ ) which has an initial term ranging between 20 and 25 years. Under each PPAHQ, Hydro-Québec is bound to purchase all of the electrical energy made available to it by the facility as of commissioning up to the time the agreed maximum annual quantity is produced. The facility, in turn, is obliged to supply a certain quantity of energy during each period of 12 consecutive months beginning on December 1st in each contract year. The purchase price is based on the rate structure selected by the facility from the following rate structures: (a) a unified rate structure, which provides for a single rate for energy delivered throughout the year; or (b) a premium power rate structure for Winter, which provides for a basic rate per kwh delivered throughout the year, plus a capacity premium per kw delivered during Winter, up to the contractual capacity level. In most cases, the purchase price paid for electricity is indexed on December 1st of each year in accordance with Statistics Canada Consumer Price Index for the Montreal Urban Community (the CPI ), typically subject to a minimum annual increase of 3% and a maximum annual increase of 6%. 4
Hydro-Québec pays for the electricity delivered on a monthly basis in accordance with rates and conditions set out in each PPAHQ within 21 business days of the receipt by Hydro-Québec of an invoice. If Hydro-Québec cannot take delivery of the energy made available to it by the facility over a cumulative period of 360 hours (15 days) per contract year, it must pay, at the rates established under the PPAHQ, for all of the power made available during the period exceeding 360 hours. If in any contract year, the quantity of energy delivered to Hydro-Québec exceeds a certain agreed maximum quantity, the applicable price to be charged for such excess quantity is as periodically established and published by Hydro-Québec. Such price is not subject to any indexation or to any capacity premium. If in any given contract year, the energy delivered is less than a certain agreed minimum quantity, a penalty for each kwh below such quantity is payable to Hydro-Québec, as set forth in the PPAHQ. In most cases, the PPAHQ may be renewed upon a prior 12-month written notice to Hydro-Québec for a period not exceeding the initial term and upon conditions to be negotiated, including the viability of the facility and the purchase price. In accordance with the Watercourses Act (Québec), the Québec Hydro facilities are subject to a statutory royalty payable to the Ministère des Ressources naturelles et de la Faune du Québec. This royalty is indexed annually in accordance with the CPI. The US facilities supply electricity to Niagara Mohawk Power Corporation ( NMPC ), a subsidiary of National Grid, pursuant to the Power Purchase Agreements with NMPC (the PPANMPC ), which expire in 2035 for Hudson Falls and in 2034 for South Glens Falls and cannot extend beyond the term of the licenses issued by the Federal Energy Regulatory Commission (the FERC ) for the US facilities. Neither PPANMPC is renewable. Under the terms of both PPANMPCs, NMPC is bound to purchase all of the electricity produced by the US facilities, save and except for the electricity consumed by the US facilities. The purchase price for the electricity delivered, up to 36.1 MW for Hudson Falls and 13.78 MW for South Glens Falls, varies annually pursuant to a fixed rate schedule. NMPC is bound to purchase all electricity produced by the US facilities when the US facilities are operating above a capacity of 36.1 MW for Hudson Falls and 13.78 MW for South Glens Falls, at a rate equal to the then current rate policies regarding the purchase of electricity from independent power producers, although the US facilities may seek to sell such electricity to third parties through auctions or negotiated transactions. No later than November 2026 for Hudson Falls and September 2025 for South Glens Falls, NMPC has a one-time option to replace the rate for the remaining ten years of the term of each PPANMPC with NMPC s full avoided cost for the same delivery voltage, as contained in NMPC s then current tariff PSC No. 207 Electricity, Service Classification No. 6, or its then current equivalent. The rate under NMPC s current tariff PSC No. 207 Electricity, Service Classification No. 6, is based upon an hourly determination of New York wholesale power market clearing prices at the connecting generator bus or other nearby connection. The Acquisition RECENT DEVELOPMENTS On January 7, 2010, Boralex submitted a letter to the Board of Trustees indicating its interest in making an offer by way of take-over bid to acquire all of the outstanding Units and specifying certain terms contemplated by Boralex for such an offer, including the form and amount of consideration, being convertible debentures of Boralex. On May 3, 2010, Boralex and the Fund jointly announced that they had entered into a definitive support agreement (the Support Agreement ) pursuant to which Boralex, through Subco, agreed to offer to acquire by way of take-over bid all of the issued and outstanding Units, including Units issuable upon the conversion, exchange or exercise of any securities that are convertible into or exchangeable or exercisable for Units, except for all of the outstanding Class B LP Units, in exchange for $5 cash equivalent value per Unit in the form of 6.25% convertible unsecured subordinated debentures of Boralex (the Initial Acquisition Consideration Debentures ). On May 19, 2010, Boralex filed with the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission the Offer to Purchase and commenced the mailing of the Offer to Purchase to the Unitholders. 5
On June 28, 2010, Boralex, through Subco, announced that it had extended its Offer to Purchase to 7:00 p.m. (Montréal time) on July 12, 2010, unless extended or withdrawn by Subco. On July 12, 2010, Boralex, through Subco, announced that it had improved the consideration in its Offer to Purchase by increasing the annual interest rate to 6.75% per annum on the Initial Acquisition Consideration Debentures (instead of 6.25% per annum), and by offering a conversion price of $12.50 per Common Share (instead of $17.00) and had extended its offer until 7:00 p.m. (Montréal time) on July 30, 2010 (as amended, the Acquisition Consideration Debentures ). On July 30, 2010, Boralex, through Subco, announced that it had extended its Offer to Purchase to 7:00 p.m. (Montréal time) on August 13, 2010, unless extended or withdrawn by Subco. On August 13, 2010, Boralex, through Subco, announced that it had extended its Offer to Purchase to 7:00 p.m. (Montréal time) on September 10, 2010, unless extended or withdrawn by Subco. On August 25, 2010 Boralex announced that it was amending its Offer to Purchase by offering, at the election of the Unitholders, $5.00 consideration per Unit in the form of (a) cash, or (b) Acquisition Consideration Debentures, in each case subject to proration. The maximum amount of cash payable under the amended offer and any subsequent Compulsory Acquisition (as defined herein) or Subsequent Acquisition Transaction (as defined herein) is $90,600,000 (the Cash Payment ) and the maximum aggregate principal amount of Acquisition Consideration Debentures available under the amended offer is $135,900,000. Unitholders who deposit Units under the Offer to Purchase and fail to make an election will be deemed to have elected to receive consideration in the form of 0.05 of a $100 principal amount of Acquisition Consideration Debentures. Boralex also announced that it had extended the Offer to Purchase until 7:00 p.m. (Montréal time) on September 15, 2010. Boralex also announced on August 25, 2010 that Unitholders representing approximately 9% of the issued and outstanding Units, on a fully-diluted basis, namely; K2 Principle Fund LP, MMCAP International Inc., SPC and additional institutional investors (collectively, the Locked-Up Unitholders ) have entered into lock-up agreements (the Lock-Up Agreements ) with Subco pursuant to which they have agreed to tender their Units to the revised offer. Under the terms of the Lock-Up Agreements, the Locked-Up Unitholders have agreed to deposit to the Offer to Purchase and not withdraw, all of their Units in the capital of the Fund, together with any other Units, or other securities of the Fund exchangeable into Units, which the Locked-Up Unitholders may acquire from the date of the Lock-Up Agreements (collectively, the Subject Units ). The Locked-Up Unitholders have the right to commit to depositing the Subject Units into an offer for all of the outstanding Units which will pay the holder of Units, on closing, a consideration per Unit that has a value of $5.25 or more, as determined by the Locked-Up Unitholders (a Superior Proposal ); provided, however, that any such commitment must be conditional upon Subco having been given the opportunity to increase the consideration per Unit under the Offer to Purchase to an amount at least equal in value to the amount offered under the Superior Proposal. The Lock-Up Agreements shall terminate with (i) the mutual consent of Subco and the Locked-Up Unitholders, at any time, (ii) the Subject Units deposited under the Offer to Purchase having not, for any reason whatsoever, been taken up and paid for on or before the expiry of ten days after the expiry of the Offer to Purchase, subject to any extension in accordance with the Lock-Up Agreements or the Offer to Purchase; or (iii) Subco being in breach of any of its other obligations under the Lock-Up Agreements in any material respect. On August 31, 2010, O Leary Funds Management LP and certain funds managed by it filed with the Québec Superior Court a motion to institute proceedings against Boralex, Subco and the Fund, as defendants, and Computershare Trust Company of Canada and CDS, as impleaded parties, seeking to prevent Boralex, Subco and the Fund from expropriating their Units. The motion only seeks to prevent a second step, such as a Subsequent Acquisition Transaction, and does not intend to prevent the take-up and payment of Units tendered under the Offer to Purchase. A press release announcing the filing of the motion was issued by O Leary Funds Management LP on the same day. The motion will be presented, for administrative purposes, before the Superior Court of Québec on October 5, 2010 and a hearing will only be scheduled in due course thereafter. 6
Attributes of the Combined Entity and Reasons for the Acquisition The combined entity of Boralex and the Fund, resulting from the Acquisition (the Combined Entity ) will benefit from an improved asset diversification and growth prospects with a power production capacity of 600 MW split between 38 facilities in Canada, the United States and France. The largest facility will account for less than 8% of the total power production capacity while the average facility will account for less than 3% of the total power production capacity. Boralex has indirectly provided management, administrative, operating and maintenance services to the Fund s facilities since the Fund s initial public offering in 2002. Boralex is uniquely positioned as an acquirer of the Fund ensuring a seamless post-acquisition transition. Valuation Opinion Pursuant to an engagement letter (the Engagement Letter ) signed on March 5, 2010, BMO Capital Markets was formally engaged by the Special Committee in connection with the Offer to Purchase, to prepare and deliver to the Special Committee a formal valuation of the Units and the non-cash consideration offered under the Offer to Purchase in accordance with the requirements of MI 61-101. No part of BMO Capital Markets fee is contingent upon the conclusion reached in its valuation, the outcome of the Offer to Purchase or any other transaction. BMO Capital Markets has been determined to be independent within the meaning of MI 61-101. For the purposes of the valuation and in respect of MI 61-101, fair market value is defined as the monetary consideration that, in an open and unrestricted market, a prudent and informed buyer would pay to a prudent and informed seller, each acting at arm s length with the other, where neither party is under any compulsion to act. This definition is consistent with the definition of fair market value in MI 61-101. In accordance with MI 61-101, BMO Capital Markets has made no downward adjustment to the fair market value of the Units to reflect the liquidity of the Units, the effect of the Offer to Purchase on the Units or the fact that the Units held by individual Unitholders do not form part of a controlling interest. A valuation prepared on the foregoing basis is referred to as an en bloc valuation. Based upon and subject to the scope of review, major assumptions and restrictions and qualifications contained in the valuation, BMO Capital Markets gave its opinion dated May 3, 2010 that, as at May 3, 2010: (i) the fair market value of the Units was in the range of $4.50 to $5.05; and (ii) the fair market value of the Initial Acquisition Consideration Debentures at May 3, 2010 was in the range of $98 to $101 per $100 principal amount, implying that the value of the consideration offered ranges between $4.90 to $5.05 per Unit. Updated Valuation Opinion On July 13, 2010, the Special Committee requested from BMO Capital Markets a formal valuation of the non-cash consideration (as defined by MI 61-101) offered under the amended Offer to Purchase, being the Acquisition Consideration Debentures. BMO Capital Markets provided its updated valuation dated July 14, 2010 to the effect that, as at such date and based upon and subject to the scope of review, major assumptions and restrictions and qualifications contained therein, the fair market value of the Units remained in the range of $4.50 to $5.05, and the fair market value of the non-cash consideration offered under the improved Offer to Purchase, being the Acquisition Consideration Debentures, was in the range of $103 to $107 per $100 principal amount, implying that the value of the consideration offered for the improved Offer to Purchase ranges between $5.15 to $5.35 per Unit. BMO Capital Markets valuations referred to above were provided to the Special Committee solely for the purpose of its consideration of the Offer to Purchase. Under the terms of the Engagement Letter, such valuations may not be used for any other purpose or be relied upon by any other person. Such valuations were provided for the use of the Special Committee and should not be construed as a recommendation to invest in the Debentures. BMO Capital Markets valuations are subject to the scope of review, major assumptions and restrictions and qualifications contained therein and must be considered in their entirety by the reader, as selecting and relying on only specific portions of the analyses or factors considered, without considering all factors and analyses together, could create a misleading view of the processes underlying such valuations. In particular, the preparation of a 7
valuation is a complex process and it is not appropriate to extract partial analyses or make summary descriptions. Any attempt to do so could lead to undue emphasis on a particular factor or analysis. The Acquisition of Units Not Acquired Under the Offer To Purchase If Subco takes up and pays for Units validly tendered under the Offer to Purchase, Subco has agreed to complete a Compulsory Acquisition or to take commercially reasonable efforts to carry out a Subsequent Acquisition Transaction to acquire all of the Units not tendered under the Offer to Purchase. Compulsory Acquisition Section 6.29 of the Trust Agreement currently permits Subco to acquire the Units not deposited under the Offer to Purchase, for the same consideration per Unit as payable under the Offer to Purchase if within the time provided by the Offer to Purchase for its acceptance or within 120 days after the date the Offer to Purchase is made, whichever period is the shorter, the Offer to Purchase is accepted by the holders of at least 90% of the outstanding Units (on a fully-diluted basis), other than the outstanding Units or Special Voting Units held at the date of the take-over bid by or on behalf of, or issuable to the offeror or an affiliate or associate of the offeror (a Compulsory Acquisition ). If a Compulsory Acquisition is available, Subco may acquire the Units not deposited under the Offer to Purchase pursuant to those procedures in the manner described herein. To exercise such rights, Subco must give notice (the Offeror s Notice ) to each holder of Units who did not accept the Offer to Purchase (in each case, a Non-Tendering Offeree ) of such proposed acquisition by registered mail within 60 days after the date of termination of the Offer to Purchase and in any event within 180 days after the date of the take-over bid. The Trust Agreement currently provides that within 20 days after the sending of the Offeror s Notice, Subco must pay or transfer to the Board of Trustees, or to such person as the Board of Trustees may direct, the consideration Subco would have had to pay or transfer to Non-Tendering Offerees if they had accepted the Offer to Purchase, to be held in trust for the Non-Tendering Offerees. Section 6.29 of the Trust Agreement also provides that, within 20 days after receiving the Offeror s Notice, each Non-Tendering Offeree must cause its Units to be transferred to Subco on the terms of the Offer to Purchase. If Subco has complied with the foregoing, then, within 30 days after the sending of the Offeror s Notice, the Board of Trustees shall do or cause to be done all acts and things, and execute and cause to be executed all instruments as in the opinion of the Board of Trustees may be necessary or desirable to cause the transfer of the Non-Tendering Offeree s Units to Subco on the terms of the Offer to Purchase. If Subco elects to proceed by way of Compulsory Acquisition, it is the current intention of Subco to provide the Offeror s Notice immediately following the take up and payment of Units deposited under the Offer to Purchase. Subco reserves the right to cause a special meeting of Unitholders to be called to consider amending the provisions of Section 6.29 of the Trust Agreement to provide that Units held by Non-Tendering Offerees will be deemed to have been transferred to Subco immediately on the giving of the Offeror s Notice (as opposed to on the expiry of the 20 day period after the sending of the Offeror s Notice) and that those Non-Tendering Offerees will cease to have any rights as Unitholders from and after that time, other than the right to be paid the same consideration per Unit that Subco would have paid to the Non-Tendering Offerees if they had deposited those Units under the Offer to Purchase with respect to such transferred Units. Subsequent Acquisition Transaction If Subco takes up and pays for Units validly deposited under the Offer to Purchase and the right of Compulsory Acquisition described above is not available or Subco elects not to pursue such right, Subco currently intends to cause a special meeting of Unitholders to be called to consider a consolidation, amalgamation, arrangement, merger, capital reorganization, amendment to the Trust Agreement or other transaction involving the Fund and Subco or an affiliate of Subco for the purpose of enabling Subco or an affiliate of Subco to acquire all Units not acquired pursuant to the Offer to Purchase (a Subsequent Acquisition Transaction ). The timing and details of any such transaction will depend on a number of factors, including the number of Units acquired pursuant to the Offer to Purchase. Without limiting the generality of the foregoing, Subco may at a special meeting of Unitholders so called for such purpose, cause the consideration and adoption of an amendment to Section 6.29 of the Trust Agreement to permit 8