Emera -- summary under Automatically Convertible

Overview

In order to help fund its indirect purchase of TECO Energy for approximately U.S.$8.6 billion, Emera is proposing to issue U.S.$1.2 billion of subordinated notes which mature in 2076, are automatically convertible into preferred shares bearing a cumulative dividend equal to the notes’ interest rate on the occurrence of an Emera insolvency (as defined in detail) and accord Emera the right to defer the due date for any given interest coupon for up to five years. The notes are redeemable at Emera’s option at par after June 15, 2026 (at which point, the interest thereon also converts from fixed to floating). The notes also can be redeemed at par at Emera’s option before that date if it receives a Canadian or U.S. legal opinion that its treatment or intended treatment of the notes in its tax returns (e.g., as to interest deductibility) will not be respected by a relevant tax authority. The Canadian tax disclosure treats the notes as debt, whereas the U.S. tax disclosure is diffident on this issue.

Emera

A TSX-listed company formed under the Companies Act (Nova Scotia) that invests in electricity generation, transmission and distribution, as well as gas transmission and utility energy services.

Use of proceeds for TECO Acquisition

Pursuant to the Acquisition Agreement among Emera, Emera US Inc., a direct wholly-owned subsidiary of Emera US Holdings Inc. and TECO Energy, Emera will indirectly purchase all of the outstanding common shares of TECO Energy for an estimated net purchase price of approximately U.S.$8.6 billion. The net Note proceeds of U.S.$1,183,000,000 will be used to finance, directly or indirectly, part of the purchase price payable for such Acquisition and to reduce amounts outstanding under the Acquisition credit facilities.

Interest/Deferral Right/Dividend Stopper

6.75% per year in equal semi-annual installments. So long as no event of default has occurred and is continuing, Emera may elect to defer the interest payable on the Notes on one or more occasions for up to five consecutive years (a "Deferral Period"). There is no limit on the number of Deferral Periods that may occur. Unless Emera has paid all accrued and payable interest on the Notes, it generally is prohibited from declaring any dividends on its “Dividend Restricted Shares” or pay any interest on equal-ranking notes or redeeming retiring Dividend Restricted Shares or such notes.

Interest reset

Starting on June 15, 2026, and on every March 15, June 15, September 15 and December 15 of each year during which the Notes are outstanding thereafter until June 15, 2076 the interest rate on the Notes will be equal to the three month LIBOR plus 5.44% (or plus 6.19% starting on June 15, 2046).

Automatic Conversion

The Notes will be converted automatically ("Automatic Conversion") into shares of a newly issued series of First Preferred Shares (the "Conversion Preferred Shares") upon the occurrence of specified insolvency-related events including: (i) the making by Emera of a general assignment for the benefit of its creditors or a proposal (or the filing of a notice of its intention to do so) under the Bankruptcy and Insolvency Act (Canada); or (ii) any proceeding instituted by Emera seeking to adjudicate it a bankrupt or insolvent, or, where Emera is insolvent, seeking liquidation, winding up, dissolution, reorganization, arrangement, adjustment, protection, relief or composition of its debts under any law relating to bankruptcy or insolvency in Canada. At the Conversion Time, holders of Notes will receive one Conversion Preferred Share for each U.S.$1,000 principal amount of Notes previously held together with fractional or whole Conversion Preferred Shares respecting accrued and unpaid interest.

Offshore holders on Automatic Conversion

Upon an Automatic Conversion of the Notes, Emera reserves the right not to issue Conversion Preferred Shares to “Ineligible Persons,” (defined respecting residence in any jurisdiction outside Canada or the U.S. where the issuance to such person of Conversion Preferred Shares would require Emera to take any action to comply with securities or analogous laws of such jurisdiction or withholding tax would be applicable on the Automatic Conversion). In such circumstances, Emera will hold all Conversion Preferred Shares that would otherwise be delivered to Ineligible Persons, as agent for Ineligible Persons, and will attempt to facilitate the sale of such shares through a registered dealer on their behalf of such Ineligible Persons of such Conversion Preferred Shares.

Conversion Preferred Shares

Entitled to receive cumulative preferential cash dividends, if and when declared by the Board but subject to the Companies Act, at the same rate as would have accrued on the Notes, and payable on each semi-annual or quarterly dividend payment date.

Note redemption rights

On or after June 15, 2026, Emera may (on giving notice) redeem the Notes on any Interest Payment Date for the principal amount together with accrued and unpaid interest. In the event that the closing of the Acquisition has not occurred by the specifed special mandatory redemption triggering date or the Acquisition Agreement is terminated prior to that date, Emera will be required to redeem the Notes at a redemption price equal to 101% of the aggregate principal amount of the Notes, plus accrued and unpaid interest.

Redemption if interest non-deductible

Prior to June 15, 2026, also redeemable by Emera within 90 days of the occurrence of a "Tax Event," which occurs if Emera receives an opinion of independent counsel of a nationally recognized law firm in Canada or the U.S. to the effect that Emera is, or may be, subject to more than a de minimis amount of additional taxes because the treatment of any of its items of income, taxable income, expense, taxable capital or taxable paid-up capital with respect to the Notes (including the treatment by Emera of interest on the Notes), as reflected in any tax return filed or to be filed will not be respected by a taxing authority.

Subordination

The payment of principal and interest on the Notes will be subordinated in right of payment to the prior payment in full of all present and future Senior Indebtedness (being obligations (other than non-recourse obligations or any other obligations specifically designated as being subordinate in right of payment to Senior Indebtedness) of, or guaranteed or assumed by, Emera.

Canadian tax consequences

Non-residents: Interest on and disposition of Notes

Interest will be exempt from Canadian non-resident withholding tax. No other taxes on income (including taxable capital gains) will be payable under the Tax Act in respect of the acquisition, holding, redemption or disposition of Notes, or the receipt of interest, premium or principal thereon by a non-resident holder solely as a consequence of such acquisition, holding, redemption or disposition of Notes.

Automatic Conversion

A conversion of Notes into Conversion Preferred Shares pursuant to an Automatic Conversion will result in a disposition of such Notes for purposes of the Tax Act for proceeds equal to the fair market value of the Conversion Preferred Shares which the Non-Resident Holder acquires, not including any amount considered to be interest. A Non-Resident Holder will not generally be subject to tax under the Tax Act in respect of such disposition. The aggregate cost to a Non-Resident Holder of the Conversion Preferred Shares ultimately received on an Automatic Conversion will be equal to the fair market value thereof at the time received.

Taxable preferred shares

The Conversion Preferred Shares will be "taxable preferred shares." The terms of the Conversion Preferred Shares will require Emera to make the necessary election under Part VI.1.

U.S. tax consequences

Debt treatment

There is no direct legal authority as to the proper U.S. federal income tax treatment of an instrument such as the Notes that is denominated as a debt instrument and has certain significant debt features, but that provides for a possible Automatic Conversion. Emera intends to treat the Notes as debt for such purposes. If the Notes were treated as equity and Emera were a "passive foreign investment company" for any taxable year of a U.S. investor, the investor could be subject to adverse tax consequences.

Contingent debt payments.

The likelihood that Emera would be required to make payments on a Note that would increase the yield of the Note is "remote," and/or that the amount of any such payments, if made, would be "incidental," in each case within the meaning of the applicable Treasury Regulations. Therefore, Emera intends to take the position that the possibility of such payments does not result in the Notes being treated as contingent payment debt instruments under the applicable Treasury Regulations….

Interest deferral right

Regulations provide that a debt instrument will not be treated as issued with original issue discount, or OID, by reason of its issuer’s ability to defer payments of interest if the likelihood of such deferral is "remote." Emera intends to take the position that, as of the date of this Prospectus, the likelihood of deferring payments of interest under the terms of the Notes is "remote."

Automatic Conversion

The conversion of Notes for Conversion Preferred Shares pursuant to the Automatic Conversion should be treated as a tax-free recapitalization.