FILED BY ENERFLEX LTD.
PURSUANT TO RULE 425 UNDER THE SECURITIES ACT OF 1933, AS AMENDED
AND DEEMED FILED PURSUANT TO RULE 14A-12
UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED

SUBJECT COMPANY: EXTERRAN CORPORATION
COMMISSION FILE NO. FOR REGISTRATION STATEMENT ON
FORM F-4 FILED BY ENERFLEX LTD.: 333-263714

 

ENERFLEX LTD. SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 11, 2022September 8, 2022These materials are important and require your immediate attention. They require shareholders of Enerflex Ltd. (Enerflex) to make important decisions. If you have questions or require assistance voting your Enerflex common shares, you can contact our strategic shareholder advisor and proxy solicitation agent, Morrow Sodali, by telephone toll free in North America at 1.888.999.3016 or at 1.289.695.3075 outside of North America, or by email at assistance@morrowsodali.com. If you are in doubt as to how to make these decisions or require assistance with voting your Enerflex common shares, please contact your financial, legal or other professional advisors. No securities regulatory authority has expressed an opinion about, or passed upon the fairness or merits of the transaction, described in this document, the securities being issued in connection with such transaction or the adequacy of the information contained in this document and it is an offence to claim otherwise.

TABLE OF CONTENTS

 

NOTICE OF SPECIAL MEETING OF ENERFLEX SHAREHOLDERS			i
MESSAGE FROM THE CHAIR OF THE BOARD AND THE PRESIDENT AND CHIEF EXECUTIVE OFFICER			ii
INFORMATION CONTAINED IN THIS MANAGEMENT INFORMATION CIRCULAR			1
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND THE ENERFLEX SPECIAL MEETING			12
SUMMARY			19
RISK FACTORS			29
INFORMATION ABOUT ENERFLEX, MERGER SUB, EXTERRAN, AND THE COMBINED COMPANY			37
THE TRANSACTION			38
THE MERGER AGREEMENT			57
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION			80
SECURITIES LAW MATTERS			92
AUDITORS, TRANSFER AGENT, AND REGISTRAR			93
INTERESTS OF CERTAIN PERSONS OR COMPANIES IN THE TRANSACTION			93
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS			93
EXPERTS			93
GENERAL INFORMATION FOR THE ENERFLEX SPECIAL MEETING			93
OTHER BUSINESS			100
ADDITIONAL INFORMATION			100
APPROVAL			100
APPENDIX A RESOLUTION TO BE APPROVED AT THE ENERFLEX SPECIAL MEETING			A-1
APPENDIX B MERGER AGREEMENT			B-1
APPENDIX C RBC FAIRNESS OPINION			C-1
APPENDIX D CONSENT OF FINANCIAL ADVISOR			D-1
APPENDIX E INFORMATION CONCERNING EXTERRAN CORPORATION			E-1
APPENDIX F INFORMATION CONCERNING ENERFLEX LTD.			F-1
APPENDIX G INFORMATION CONCERNING THE COMBINED COMPANY			G-1

 

NOTICE OF SPECIAL MEETING OF ENERFLEX SHAREHOLDERS

NOTICE IS HEREBY GIVEN that a special meeting (the “Enerflex Special Meeting”) of the holders (the “Enerflex Shareholders”) of common shares (“Enerflex Common Shares”) of Enerflex Ltd. (“Enerflex”) will be held at The Westin Calgary, 320 4^th Avenue S.W., Calgary, Alberta on October 11, 2022 at 9:00 a.m. (MDT). At the Enerflex Special Meeting, holders of Enerflex Common Shares will be asked to consider, and, if deemed appropriate, pass, with or without variation, an ordinary resolution (the “Share Issuance Resolution”), the full text of which is set out in “Appendix A – Resolution to be Approved at the Enerflex Special Meeting” to the accompanying management information circular of Enerflex dated September 8, 2022 (the “Management Information Circular”), approving the issuance of the number of Enerflex Common Shares as shall be necessary to satisfy the Merger Consideration under the terms of the Merger Agreement (as such terms are defined in the Management Information Circular), anticipated to be up to an aggregate of 34,013,055 Enerflex Common Shares and up to an additional 5,000 Enerflex Common Shares that may be issuable to accommodate the effects of rounding or other administrative purposes.

We will also consider other business that may properly be brought before the Enerflex Special Meeting or any adjournment or postponement thereof. This Notice of Special Meeting of Enerflex Shareholders is accompanied by the Management Information Circular and a form of proxy or voting instruction form (as applicable). Enerflex Shareholders are referred to the Management Information Circular for more detailed information regarding the Enerflex Special Meeting.

The directors of Enerflex have fixed September 9, 2022 as the record date for the Enerflex Special Meeting. Enerflex Shareholders of record as at the close of business on September 9, 2022 are entitled to notice of the Enerflex Special Meeting and to vote their Enerflex Common Shares thereat or at any adjournment or postponement thereof.

To be voted at the Enerflex Special Meeting, your proxy must be received before 9:00 a.m. (MDT) on October 6, 2022 or not less than 48 hours (excluding Saturdays, Sundays, and holidays) prior to the time fixed for holding the Enerflex Special Meeting (or any adjournment or postponement thereof). The time limit for the deposit of proxies may be waived or extended by the Chair of the Enerflex Special Meeting at his or her sole discretion without notice. Late proxies may be accepted or rejected by the Chair of the Enerflex Special Meeting at his or her sole discretion without notice.

If you are a non-registered (beneficial) Enerflex Shareholder and have received these materials through a broker, bank, or other agent, you must provide your voting instructions to, or complete, sign, and return your voting instruction form in accordance with the instructions provided by such broker, bank, or other agent.

In the Management Information Circular, you will find important information and instructions about how to participate at the Enerflex Special Meeting. Every vote matters. Please remember to vote your Enerflex Common Shares by proxy, telephone, or online in advance of the Enerflex Special Meeting. If you have questions or require assistance voting your Enerflex Common Shares, you can contact our strategic shareholder advisor and proxy solicitation agent, Morrow Sodali, by telephone toll free in North America at 1.888.999.3016, or at 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.

We look forward to your participation in our meeting on October 11, 2022 and thank you for your support of Enerflex.

BY ORDER OF THE BOARD OF DIRECTORS

[signed] “Marc E. Rossiter”

Marc E. Rossiter

Director, President and Chief Executive Officer

September 8, 2022

 

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MESSAGE FROM THE CHAIR OF THE BOARD AND

THE PRESIDENT AND CHIEF EXECUTIVE OFFICER

September 8, 2022

Fellow Shareholders:

On January 24, 2022 Enerflex Ltd. (“Enerflex”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Exterran Corporation (“Exterran”) and Enerflex US Holdings Inc., a direct wholly-owned subsidiary of Enerflex (“Merger Sub”) that provides for the acquisition of Exterran by Enerflex. Under the Merger Agreement, Merger Sub will merge with and into Exterran and Exterran shall continue its corporate existence under Delaware law as the surviving corporation in the merger and will be a direct wholly-owned subsidiary of Enerflex (together with the other transactions contemplated by the Merger Agreement, the “Transaction”). Completion of the Transaction will result in a premier integrated global provider of energy infrastructure.

We are pleased to invite you to attend a special meeting of the holders of common shares (“Enerflex Common Shares”) of Enerflex (“Enerflex Shareholders”) to be held at 9:00 a.m. (MDT) on October 11, 2022 (the “Enerflex Special Meeting”). Enerflex is holding the Enerflex Special Meeting at The Westin Calgary, 320 4^th Avenue S.W., Calgary, Alberta. Shareholders will be able to vote on all business properly brought before the Enerflex Special Meeting as further described in the accompanying management information circular of Enerflex dated September 8, 2022 (the “Management Information Circular”). Enerflex Shareholders that vote by proxy ahead of the Enerflex Special Meeting will be able to do so in the usual way. More details about voting can be found in the Management Information Circular under the heading “General Information for the Enerflex Special Meeting – Voting of Proxies”.

The Merger Agreement and the Transaction were unanimously approved by the respective boards of directors of Enerflex and Exterran. Under the Merger Agreement, each share of common stock of Exterran (“Exterran Common Stock”), other than certain excluded shares as described in the Merger Agreement, will be converted automatically into the right to receive 1.021 validly issued, fully paid and non-assessable Enerflex Common Shares (“Merger Consideration”). This exchange ratio is fixed and will not be adjusted for fluctuations in the market price of Enerflex Common Shares or shares of Exterran Common Stock between the date of the Merger Agreement and the closing of the Transaction.

At the Enerflex Special Meeting, you will be asked to approve an ordinary resolution, being a resolution approved by a majority of the votes cast by holders of outstanding Enerflex Common Shares represented in person or by proxy and entitled to vote at the Enerflex Special Meeting (the “Share Issuance Resolution”), approving the issuance of up to an aggregate of 34,018,055 Enerflex Common Shares representing the number of Enerflex Common Shares expected to be necessary to satisfy the Merger Consideration under the terms of the Merger Agreement, which includes an additional 5,000 Enerflex Common Shares that may be issuable to accommodate the effects of rounding or other administrative purposes. It is a closing condition under the Merger Agreement and a requirement under policies of the Toronto Stock Exchange that the Share Issuance Resolution be approved in order for the Transaction to close.

RBC Dominion Securities Inc. (“RBC”) has acted as financial advisor to Enerflex in connection with the Transaction and RBC has provided the Board of Directors of Enerflex (the “Board”) with an opinion that, as of the date of such opinion and subject to the assumptions, limitations, qualifications, and other matters stated in such opinion, the Merger Consideration is fair, from a financial point of view to Enerflex. The fairness opinion of RBC is attached as “Appendix C – RBC Fairness Opinion” to the Management Information Circular.

Enerflex’s Board of Directors has unanimously determined, after consulting with its legal and financial advisors, and, among other things, following review and consideration of the fairness opinion rendered by RBC, that it is in the best interests of Enerflex to enter into the Merger Agreement and complete the Transaction and has resolved to recommend that the Enerflex Shareholders vote FOR the Share Issuance Resolution.

The Transaction cannot be completed without Enerflex Shareholders approving the Share Issuance Resolution. The Enerflex Board of Directors unanimously recommends that Enerflex Shareholders vote FOR the Share Issuance Resolution.

Upon completion of the Transaction, all current members of the Board will continue to serve as directors of Enerflex and one of the current directors of Exterran will be appointed to the Board.

Please refer to the Management Information Circular for a more detailed description of the Transaction, including information about Exterran, the terms and conditions of the Merger Agreement, the opinion of Enerflex’s financial advisor, information about the Enerflex Special Meeting, a summary of the factors considered by the Enerflex Board in considering the Transaction and the risk factors relating to Enerflex, Exterran, and the closing of the Transaction. Please give the Management Information Circular your careful consideration and, if you require assistance, consult your financial or other professional advisors.

 

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In the Management Information Circular, you will find important information and instructions about how to participate at the meeting. Every vote matters. Please remember to vote your Enerflex Common Shares by proxy, telephone, or online in advance of the Enerflex Special Meeting. If you have questions or require assistance voting your Enerflex Common Shares, you can contact our strategic shareholder advisor and proxy solicitation agent, Morrow Sodali, by telephone toll free in North America at 1.888.999.3016, or at 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.

Sincerely,

 

 

(signed) “Kevin J. Reinhart”   Kevin J. Reinhart Board Chair Enerflex Ltd.		(signed) “Marc E. Rossiter”   Marc E. Rossiter Director, President and Chief Executive Officer Enerflex Ltd.

 

 

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ENERFLEX LTD. MANAGEMENT INFORMATION CIRCULAR

INFORMATION CONTAINED IN THIS MANAGEMENT INFORMATION CIRCULAR

This Management Information Circular is provided in connection with the solicitation by management of Enerflex of proxies from Enerflex Shareholders for use at the Enerflex Special Meeting for the purposes set out in the accompanying Notice of Special Meeting of Shareholders. No person has been authorized to give any information or make any representation in connection with the Transaction or any other matters described herein other than those statements and representations contained in this Management Information Circular. Information in this Management Information Circular is given as of September 8, 2022 or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies.

Enerflex has supplied all information contained in or incorporated by reference in this Management Information Circular relating to Enerflex, and Exterran has supplied all information contained in or incorporated by reference in this Management Information Circular relating to Exterran. See “Information Contained in this Management Information Circular Regarding Exterran”.

Enerflex Shareholders should not construe the contents of this Management Information Circular as legal or financial advice and should consult with their own professional advisors as to the relevant legal, financial, or other matters which pertain to their individual circumstances.

Capitalized terms used in this Management Information Circular and not otherwise defined have the meanings set forth under the heading “Glossary of Terms”.

Cautionary Statement Regarding Forward-Looking Statements

This Management Information Circular contains certain forward-looking information and forward-looking statements (collectively, “forward-looking information”) within the meaning of applicable securities laws. This information has been included to provide readers with information about the transactions contemplated by the Merger Agreement, including the Transaction, Enerflex and Exterran, and their respective Subsidiaries and Affiliates, including management’s assessment of Enerflex’s and its Subsidiaries’ future plans and operations. This information may not be appropriate for other purposes. Forward-looking information is typically identified by words such as “anticipate”, “expect”, “project”, “estimate”, “plan”, “propose”, “intend”, “target”, “believe”, “likely”, “will”, “should”, “may” and similar words suggesting future outcomes or statements regarding an outlook. All statements, other than statements of historical fact, may be forward-looking information. In particular, this Management Information Circular contains forward-looking information relating to, but not limited to, statements concerning: the completion of the transactions contemplated by the Merger Agreement, including the Transaction and the issuance of Enerflex Common Shares, the details of the Transaction, its anticipated timing and the risks associated therewith; the satisfaction or waiver of conditions to the Transaction and their anticipated timing; the receipt and timing of required Governmental Approvals in connection with the Transaction; the anticipated benefits and synergies of the Transaction and the anticipated timing in which such benefits will be realized, if at all; that the Transaction is expected to be accretive to Enerflex Shareholders; pro forma information relating to Enerflex, Exterran, and the Surviving Corporation and the reasonableness of assumptions used in the preparation of such pro forma information; the currency of Enerflex’s dividends after Closing; Exterran’s expectations and plans for future growth; Exterran’s ability to strategically grow its business, expand its customer base, enhance its safety performance and continue to optimize its global platform, products, solutions and services and enhance its profitability; the factors and potential risks that may affect the business of Exterran; Exterran’s ability to capitalize on opportunities in the U.S. and international markets and its competitive strengths; Exterran’s belief that its global customer base will continue to invest in infrastructure projects based on longer-term fundamentals; Exterran’s intention to maintain a capital structure with an appropriate amount of leverage and financial flexibility; financial and operational measures related to Exterran’s business and its primary operating segments; operational timelines and processes related to Exterran’s business; the competitive strengths attributed to Exterran; the key challenges and uncertainties Exterran will face in the future; the expectation that demand improvement is expected in 2022; Exterran’s belief that it will be reimbursed for costs incurred to date on various projects; the demand for Exterran’s services; the expected timing of revenue recognition from Exterran’s contract operations; the statements summarized in “Schedule D – Management’s Discussion and Analysis of Exterran for the three and six month period ended June 30, 2022” to “Appendix E – Information Concerning Exterran Corporation” under the heading “Disclosure Regarding Forward-Looking Statements”; the consideration to be paid to Exterran Stockholders by Enerflex and anticipated sources of funding for such consideration; the impact of credit ratings on Enerflex’s cost of capital; any transaction fees payable in connection with the Transaction; the mechanics of the transactions contemplated by the Merger Agreement; the percentage of Enerflex Common Shares anticipated to be owned by former Exterran Stockholders and current Enerflex Shareholders following the completion of the Transaction; the composition of the Enerflex Board; the delisting of shares of Exterran Common Stock from the NYSE and the deregistration of the Exterran Common Stock under the Exchange Act and the expected timing thereof; the listing of the Enerflex Common Shares comprising the Merger Consideration on the TSX and the NYSE and the anticipated timing thereof; the expected corporate governance, dividend and compensation practices of the combined company upon Closing; Enerflex’s status as a foreign private issuer following the completion of the Transaction; the combined company’s ability to successfully achieve strategic objectives and the timing associated therewith; the integration of the respective businesses of Enerflex and Exterran, and the effects and costs of such integration; characteristics of the Surviving Corporation, including its name, board of directors, business, strategy, scale, competitive position, market reach, share capital, workforce and dividend

 

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policy; the effects of the Transaction on the combined company, including financial and operational, business prospects, revenues, shareholder returns, cost reductions, cash flows, enhanced margins, and operational safety; the mechanics of the Enerflex Special Meeting and expected timing thereof; the expected outcome of ongoing legal disputes and the materiality thereof; and the Debt Financing.

The forward-looking information contained in this Management Information Circular is based on current expectations, estimates, projections and assumptions, having regard to Enerflex’s and, as applicable, Exterran’s, experience and perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: Enerflex’s and Exterran’s ability to close the Transaction on the expected terms and on the anticipated timeline, if at all; the satisfaction or waiver of the conditions to Closing on the expected timeline, if at all; Enerflex’s expected access to sufficient capital to pursue development plans associated with full ownership of the Surviving Corporation; the markets in which Enerflex’s and Exterran’s products are used; commodity demand growth; commodity prices and interest rates; foreign exchange rates; effective tax rates; performance of Enerflex’s and Exterran’s assets and equipment; sufficiency of Enerflex’s budgeted capital expenditures in carrying out Enerflex’s business plan; geopolitical conditions, including armed conflict; applicable laws, regulations and governmental policies; the availability and cost of labour, services and infrastructure; the satisfaction by third parties of their obligations to Enerflex and Exterran; and the anticipated impacts of the COVID-19 pandemic on Enerflex’s and Exterran’s respective businesses, operating results, and/or cash flows and/or financial condition. Although Enerflex believes the expectations, estimates, projections and assumptions reflected in the forward-looking information contained in this Management Information Circular are reasonable as of the date hereof, there can be no assurance that they will prove to be correct. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty.

Undue reliance should not be placed on forward-looking information as actual results may differ materially from those expressed or implied by forward-looking information. By its nature, forward-looking information involves numerous inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking information, including but not limited to the following factors: the timing of Closing, including receipt of all required regulatory and shareholder approvals and the satisfaction of other conditions precedent, if at all; interloper risk; the realization of anticipated benefits and synergies of the Transaction and the timing thereof; the success of integration plans; the focus of management time and attention on the Transaction and other disruptions and distractions arising from the Transaction; changes in business strategy and strategic opportunities; the actions and decisions of applicable regulatory bodies; estimated future dividends; financial strength and flexibility; debt and equity market conditions, including the ability to access capital markets on favourable terms or at all; cost of debt and equity capital; potential changes in the Enerflex Common Share price, which may negatively impact the value of the consideration offered to Exterran Stockholders; the ability of management of Enerflex and its Subsidiaries and Affiliates to execute key priorities, including those in connection with the Transaction; the impact of general economic conditions, including the duration and severity of negative impacts resulting from the COVID-19 pandemic or other crises; industry conditions, including the adoption of new environmental, taxation, and other laws and regulations, and changes in how they are interpreted and enforced; environmental, social and governance expectations and investor sentiment; information security; volatility of crude oil and natural gas prices; crude oil and natural gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations, including future dividends to shareholders; increased competition; the ability to continue to build and improve on proven manufacturing capabilities and innovate into new product lines and markets; the lack of availability of qualified personnel or management; fluctuations in foreign exchange or interest rates; stock market volatility; risks related to cultural, political and economic factors in foreign jurisdictions; risks related to corruption, sanctions, and trade compliance; and other factors, many of which are beyond Enerflex’s control.

We caution that the foregoing list of factors is not exhaustive and is made as of the date hereof. For additional information about factors that could cause Enerflex’s, Exterran’s and the combined company’s results to differ materially from those described in the forward-looking information, please see the section of this Management Information Circular entitled “Risk Factors” as well as reports filed by Enerflex and Exterran from time to time with securities regulators in Canada and the U.S., including any proxy statement, prospectus, material change report, management information circular or registration statement filed in connection with the Transaction. Due to the interdependencies and correlation of these factors, as well as other factors, the impact of any one assumption, risk or uncertainty on forward-looking information cannot be determined with certainty.

Except as required by law, Enerflex undertakes no obligation to update publicly or otherwise revise any forward–looking information contained in this Management Information Circular, or the foregoing assumptions and risks affecting such forward-looking information, whether as a result of new information, future events or otherwise. All forward-looking information in this Management Information Circular is expressly qualified in its entirety by these cautionary statements.

Information Contained in this Management Information Circular Regarding Exterran

Certain information in this Management Information Circular has been provided by Exterran, including, but not limited to, information pertaining to Exterran contained in “Appendix E – Information Concerning Exterran Corporation”, including the documents which have been filed with the SEC by Exterran. With respect to this information, Enerflex and the Enerflex Board have relied exclusively upon Exterran, without independent verification by Enerflex. Although Enerflex does not have any knowledge that would indicate that such information is untrue or incomplete, neither Enerflex nor any of its directors or officers assumes any responsibility for the accuracy or completeness of such information, including any of Exterran’s financial statements, or for the failure by Exterran to disclose events or information that may affect the completeness or accuracy of the information provided by

 

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Exterran. For further information regarding Exterran, please refer to Exterran’s filings with the SEC, which may be obtained under Exterran’s profile on EDGAR at www.sec.gov. Except as otherwise indicated, the information contained in, or that can be accessed through, the SEC’s website is not intended to be incorporated by reference in this Management Information Circular.

Non-IFRS Measures

This Management Information Circular and certain documents incorporated by reference herein make reference to certain non-IFRS financial measures (“Non-IFRS Measures”) to assist in assessing Enerflex’s and the combined company’s financial performance and outlook, such as net debt to EBITDA and adjusted EBITDA. These financial measures do not have a standardized meaning as prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. These measures have been described and presented in order to provide Enerflex Shareholders, potential investors, and analysts with additional measures for analyzing the Transaction and the combined company’s liquidity and ability to generate funds to finance its operations after Closing. Such information should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. Copies of the Enerflex Annual MD&A and Enerflex Interim MD&A, which are incorporated by reference herein, are available on SEDAR at www.sedar.com.

Net debt to EBITDA

For more information about this Non-IFRS Measure, including an explanation of the composition of the measure, an explanation of how the measure provides useful information to investors, and a qualitative reconciliation of EBITDA to EBIT as well as the calculation of Net debt, see the Enerflex Annual MD&A at “Definitions” on page 17 and “Non-IFRS Measures” on page 19, and the Enerflex Interim MD&A at “Non-IFRS Measures” on page 15.

Adjusted EBITDA

For more information about this Non-IFRS Measure, including an explanation of the composition of the measure, an explanation of how the measure provides useful information to investors, and a quantitative reconciliation to Reported EBIT, the closest comparable IFRS measure, see the Enerflex Annual MD&A at “Adjusted EBITDA” on pages 6-7 and the Enerflex Interim MD&A at “Adjusted EBITDA” on pages 3-4.

Non-U.S. GAAP Measures

“Appendix E – Information Concerning Exterran Corporation” to this Management Information Circular makes reference to certain non-U.S. GAAP (“Non-U.S. GAAP Measures”) to assist in assessing Exterran’s financial performance, such as EBITDA, EBITDA, as adjusted, EBITDA percentage rate, backlog return on assets, and booking activity levels. These financial measures do not have a standardized meaning as prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. These measures have been described and presented in order to provide Enerflex Shareholders, potential investors, and analysts with additional measures for analyzing Exterran and assessing its financial performance. Such information should not be considered in isolation or as a substitute for measures prepared in accordance with U.S. GAAP.

EBITDA, as adjusted

EBITDA, as adjusted is a Non-U.S. GAAP measure defined by Exterran as net income (loss) excluding income (loss) from discontinued operations (net of tax), cumulative effect of accounting changes (net of tax), income taxes, interest expense (including debt extinguishment costs), depreciation and amortization expense, impairment charges, restructuring and other charges, non-cash gains or losses from foreign currency exchange rate changes recorded on intercompany obligations, expensed acquisition costs, gain on extinguishment of debt, and other items. Exterran believes EBITDA, as adjusted, is an important measure of operating performance because it allows management, investors, and others to evaluate and compare its core operating results from period to period by removing the impact of Exterran’s capital structure (interest expense from its outstanding debt), asset base (depreciation and amortization), its Subsidiaries’ capital structure (non-cash gains or losses from foreign currency exchange rate changes on intercompany obligations), tax consequences, impairment charges, restructuring and other charges, expensed acquisition costs, gain on extinguishment of debt, and other items. Exterran’s Management uses EBITDA, as adjusted, as a supplemental measure to review current period operating performance, comparability measures and performance measures for period to period comparisons. In addition, Exterran’s Compensation Committee has used EBITDA, as adjusted, in evaluating the performance of Exterran and Exterran’s management and in evaluating certain components of executive compensation, including performance-based annual incentive programs. Exterran’s EBITDA, as adjusted, may not be comparable to a similarly titled measure of another company because other entities may not calculate EBITDA in the same manner.

EBITDA, as adjusted, is not a measure of financial performance under U.S. GAAP and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities or any other measure determined in accordance with U.S. GAAP. Items excluded from EBITDA, as adjusted, are significant and necessary components to the operation of Exterran’s business and therefore, EBITDA, as adjusted, should only be used as a supplemental measure of Exterran’s operating performance.

EBITDA percentage rate

EBITDA percentage rate is a Non-U.S. GAAP Measure defined by Exterran as EBITDA, as adjusted, divided by total revenue. Exterran uses this financial performance measure in connection with its performance-based compensation as it believes it

 

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encourages growth in strategic business areas; increases focus on profitability, quality of revenue and cost controls. See “EBITDA, as adjusted” above and “Appendix E – Information Concerning Exterran Corporation” at “Schedule E – Executive Compensation Summary” under the subheading “Long-Term Incentive (“LTI”) Equity-Based Program”.

Backlog return on assets

Backlog return on assets is a Non-U.S. GAAP Measure defined by Exterran as adjusted gross margin divided by property, plant and equipment plus inventory. Exterran uses this financial performance measure in connection with its performance-based compensation as Exterran management believes it ensures improved value creation through returns on revenue generating assets and increased contracted revenue backlog. See “Appendix E – Information Concerning Exterran Corporation” at “Schedule E –Long-Term Incentive (“LTI”) Equity-Based Program”.

Notice to U.S. Securityholders

The Enerflex Common Shares are listed for trading on the TSX. Upon the Form F-4 becoming effective, Enerflex expects to continue to be classified as a “foreign private issuer” within the meaning of Rule 3b-4 under the Exchange Act. As a foreign private issuer, Enerflex will be exempt from certain rules under the Exchange Act that impose disclosure requirements, as well as procedural requirements, for proxy solicitations under section 14 of the Exchange Act. This Management Information Circular is prepared in compliance with applicable Canadian securities laws and regulations, and the solicitation contemplated herein is being made to Enerflex Shareholders resident in the U.S. only in accordance with applicable Canadian corporate and securities laws and regulations. Additionally, as a foreign private issuer, subject to certain conditions, Enerflex will be permitted to follow home country practice instead of certain governance requirements set out by the SEC or in the NYSE rules.

Enerflex Shareholders resident in the U.S. should be aware that, in general, such Canadian disclosure requirements differ from those applicable to proxy statements, prospectuses or registration statements prepared in accordance with U.S. laws. The financial statements of Enerflex incorporated by reference herein and the financial statements of Exterran attached to “Appendix E – Information Concerning Exterran Corporation” have been prepared in accordance with IFRS with respect to Enerflex’s financial statements and U.S. GAAP with respect to Exterran’s financial statements.

In connection with the Transaction, Enerflex and Exterran have filed relevant materials with the SEC, including the Form F-4 that includes the Proxy Statement/Prospectus, which will be the sole means by which Enerflex will offer any securities to U.S. holders of shares of Exterran Common Stock in connection with the Transaction.

Enerflex exists under the CBCA. A substantial portion of Enerflex’s assets are located outside the U.S., and many of Enerflex’s directors, and officers and some of the experts named in this Management Information Circular are residents of jurisdictions outside of the U.S. As a result, it may be difficult for investors to effect service within the U.S. upon Enerflex and those directors, officers and experts, or to realize in the U.S. upon judgments of courts of the U.S. predicated upon civil liability of Enerflex and such directors, officers or experts under U.S. federal or state securities laws. There is uncertainty as to the enforceability in Canada by a court in original actions, or in actions to enforce judgments of U.S. courts, of the civil liabilities predicated upon U.S. federal securities laws.

Information Incorporated by Reference

The following documents, filed with the securities commissions or similar regulatory authorities in Canada are specifically incorporated by reference in, and form an integral part of, this Management Information Circular, provided that such documents are not incorporated by reference to the extent that their contents are modified or superseded by a statement contained in this Management Information Circular or in any other subsequently filed document that is also incorporated by reference in this Management Information Circular:

 

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annual information form of Enerflex for the year ended December 31, 2021 dated February 23, 2022 (“Enerflex AIF”);

 

2.

amended and restated annual report of Enerflex dated March 1, 2022 (“Enerflex Annual Report”) inclusive of amended and restated audited annual consolidated financial statements of Enerflex as at and for the years ended December 31, 2021 and 2020, together with the notes thereto (“Enerflex Annual Financial Statements”) and amended and restated management’s discussion and analysis for the year ended December 31, 2021 dated February 23, 2022 (“Enerflex Annual MD&A”);

 

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unaudited interim consolidated financial statements of Enerflex as at and for the three and six months ended June 30, 2022, together with the notes thereto, dated August 10, 2022 (the “Enerflex Interim Financial Statements”);

 

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management’s discussion and analysis for the three and six months ended June 30, 2022 (the “Enerflex Interim MD&A”);

 

5.

management information circular dated March 4, 2022 in respect of Enerflex’s annual meeting of Enerflex Shareholders held on May 3, 2022 (“Enerflex Annual Management Information Circular”); and

 

6.

material change report dated January 24, 2022 in respect of the Transaction.

 

4

Any statement contained in this Management Information Circular or in a document incorporated by reference in this Management Information Circular shall be deemed to be modified or superseded to the extent that a statement contained herein or in any other subsequently filed document which also is deemed to be incorporated by reference in this Management Information Circular 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 which 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 constitute a part of this Management Information Circular except as so modified or superseded.

All documents of the type referred to above, including material change reports (but excluding any confidential material change reports), any other document of the type referred to in section 11.1 of Form 44-101F1 – Short Form Prospectus and any other document explicitly described therein as being incorporated by reference in this Management Information Circular that is filed by Enerflex under Enerflex’s profile on SEDAR at www.sedar.com after the date of this Management Information Circular and before the Enerflex Special Meeting are deemed to be incorporated by reference in this Management Information Circular.

In addition, investors and Enerflex Shareholders may obtain free copies of this Management Information Circular and other documents filed with the applicable securities regulators in Canada by Enerflex online at https://www.enerflex.com/investors/request-for-information/index.php, www.sedar.com, upon written request delivered to Enerflex at Suite 904, 1331 Macleod Trail SECalgary, Alberta, Canada, T2G 0K3, Attention: Office of the Corporate Secretary and Associate General Counsel, or by calling Enerflex at 403.261.4280 and may obtain free copies of the documents filed with the SEC by Exterran online at https://www.exterran.com/EXTN/SECFilings and www.sec.gov, upon written request delivered to Exterran at 11000 Equity Drive Houston, Texas 77041, Attention: Corporate Secretary, or by calling Exterran at 281.836.7000.

Currency

All references in this Management Information Circular to dollars or “$” are to Canadian dollars, unless otherwise indicated, except that all references in “Appendix E – Information Concerning Exterran Corporation” to dollars or “$” are to U.S. dollars, unless otherwise indicated. All references in this Management Information Circular to “U.S.$” or “USD” are to U.S. dollars. The rates set forth below may differ from the actual rates used in Enerflex’s accounting processes and in the preparation of Enerflex’s consolidated financial statements or the unaudited pro forma financial information presented in this Management Information Circular.

Currency Exchange Rate Data

The following table shows, for the years and dates indicated, certain information regarding the Canadian dollar/U.S. dollar exchange rate, as reported by the Bank of Canada. Such exchange rate on September 8, 2022 was $1.3116 = U.S.$1.00.

 

		Period End					Average					Low					High
Year ended ($ per U.S.$)
2021(1)				1.2740					1.2535					1.2040					1.2933
2020(2)				1.2732					1.3415					1.2718					1.4496
2019(3)				1.2988					1.3269					1.2988					1.3600
2018(4)				1.3642					1.2957					1.2288					1.3642
2017(5)				1.2545					1.2986					1.2128					1.3743
Month ended ($ per U.S.$)
January 2022				1.2719					1.2616					1.2474					1.2772
February 2022				1.2698					1.2716					1.2677					1.2832
March 2022				1.2496					1.2658					1.2470					1.2867
April 2022				1.2792					1.2628					1.2451					1.2829
May 2022				1.2648					1.2852					1.2648					1.3039
June 2022				1.2886					1.2814					1.2540					1.3035
July 2022				1.2824					1.2942					1.2824					1.3138
August 2022				1.3111					1.2922					1.2753					1.3111
September 1 - 8, 2022				1.3116					1.3141					1.3116					1.3166

Notes:

 

(1)

From January 2, 2021 through December 31, 2021.

(2)

From January 2, 2020 through December 31, 2020.

(3)

From January 2, 2019 through December 31, 2019.

(4)

From January 2, 2018 through December 31, 2018.

(5)

From January 3, 2017 through December 29, 2017.

 

5

GLOSSARY OF TERMS

“Affiliates” means, with respect to any Person, any other Person that, directly or indirectly, controls, or is controlled by, or is under common control with, such Person. As used in this definition, “control” (including, with its correlative meanings, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise.

“Aggregate Enerflex Shares” means up to an aggregate of 34,018,055 Enerflex Common Shares, comprised of the number of Enerflex Common Shares expected to be necessary to satisfy the Merger Consideration under the terms of the Merger Agreement, anticipated to be up to an aggregate of 34,013,055 Enerflex Common Shares and up to an additional 5,000 Enerflex Common Shares that may be issuable to accommodate the effects of rounding or other administrative purposes.

“Alternative Financing” has the meaning ascribed thereto in section 5.22(b) of the Merger Agreement.

“Alternative Proposal” means, with respect to Enerflex or Exterran, as applicable, any written inquiry, proposal, offer or indication of interest made by any Person or group of Persons (other than Enerflex, Merger Sub, Exterran or their respective Affiliates, as applicable) relating to or concerning (i) a plan of arrangement, amalgamation, merger, reorganization, share exchange, consolidation, business combination, recapitalization, tender offer, exchange offer, or similar transaction involving Enerflex or Exterran, as applicable, in each case, as a result of which the shareholders or stockholders of Enerflex or Exterran, as applicable, immediately prior to such transaction would cease to own at least 80% of the total voting power of Enerflex or Exterran, as applicable, or the surviving entity (or any direct or indirect parent company thereof), as applicable, immediately following such transaction, (ii) the acquisition by any third party of more than 20% of the net revenues, net income or total assets of Enerflex or Exterran, as applicable, and its Subsidiaries, on a consolidated basis, or (iii) the direct or indirect acquisition by any third party of more than 20% of the outstanding Enerflex Common Shares or shares of Exterran Common Stock, as applicable.

“Antitrust Laws” means the Sherman Antitrust Act of 1890, the Clayton Antitrust Act of 1914, the HSR Act, the Federal Trade Commission Act of 1914, and all other applicable supranational, national, federal, state, county, local or foreign antitrust, competition, merger control, foreign direct investment control or trade statutes, rules, regulation, Orders, decrees, administrative and judicial doctrines, and other Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening competition through merger or acquisition, regulate foreign investments, in the U.S. and in other non-U.S. jurisdictions where Exterran and its Subsidiaries conduct business or the laws of which any of their respective businesses or properties is bound by.

“Beneficial Shareholder” has the meaning ascribed thereto in the section “General Information for the Enerflex Special Meeting – Beneficial Shareholders – Voting by Proxy”.

“Business Day” means any day other than a Saturday, Sunday, or a day on which the banks in New York, New York, U.S. or Calgary, Alberta, Canada, are authorized by law or executive order to be closed.

“CBCA” means the Canada Business Corporations Act, R.S.C., 1985, c. C-44, as amended, including the regulations promulgated thereunder.

“Chai Trust” means Chai Trust Company, LLC, manager of funds holding an aggregate of 8,157,415 shares of Exterran Common Stock representing 24.57% of the issued and outstanding shares of Exterran Common Stock as of the date of this Management Information Circular.

“Change of Control Agreements” has the meaning ascribed thereto in the section “Exterran Executive Matters – Change of Control”.

“Change of Recommendation” means, with respect to Enerflex, a Parent Change of Recommendation and, with respect to Exterran, a Company Change of Recommendation, each as defined in the Merger Agreement.

“Closing” means the closing of the Transaction.

“Closing Date” means the date on which the Closing occurs.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Colombia Approval” means the Governmental Approval required by the Antitrust Laws in Colombia.

“combined company” means Enerflex as the direct and sole owner of Exterran, after the closing of the Transaction.

“COVID-19” means SARS-CoV-2 or Coronavirus, and any evolutions or variants thereof or related or associated epidemics, pandemic, or disease outbreaks.

“Credit Facility” means the second amended and restated credit agreement, dated as of October 9, 2018, by and among Exterran, Exterran Energy Solutions, L.P., the guarantors party thereto, Wells Fargo Securities LLC, as administrative agent, and the other parties thereto (as the same may be amended, restated or otherwise modified from time to time).

 

6

“Debt Commitment Letter” means the Debt Commitment Letter delivered at signing of the Merger Agreement and all exhibits, schedules, term sheets, annexes, supplements, amendments, and other permitted modifications thereto and any fee letter(s) with respect thereto (in each case together with joinders to add additional financing parties).

“Debt Financing” refers to the Debt Financing contemplated in the Debt Commitment Letter, together with any replacement Debt Financing permitted under the Merger Agreement, including any bank financing or debt securities issued in lieu thereof.

“DGCL” refers to the General Corporation Law of the State of Delaware.

“EBITDA” means earnings before finance costs, income taxes, depreciation, and amortization.

“Effective Time” such time as a certificate of merger in connection with the Transaction has been duly filed with the Secretary of State of the State of Delaware or at such later time as may be agreed by Exterran and Merger Sub in writing and specified in the certificate of merger in accordance with the laws of the State of Delaware.

“End Date” means October 24, 2022; provided, that to the extent the Debt Financing has not been obtained or the condition to obtain the Required Antitrust Approvals with respect to the Transaction has not been satisfied on or prior to October 24, 2022, but all other conditions to Closing have been satisfied or waived (except for those conditions that by their nature are to be satisfied at Closing), the End Date will be automatically extended for 30 days; provided, further, that if the marketing period has started within 15 days of the End Date but has not ended or will not end on or prior to the End Date, the End Date will be automatically extended to the next business day after the last scheduled day of such marketing period.

“Enerflex” means Enerflex Ltd., a corporation existing under the CBCA.

“Enerflex AIF” has the meaning ascribed thereto under the section “Information Contained in the Management Information Circular – Information Incorporated by Reference”.

“Enerflex Annual Financial Statements” has the meaning ascribed thereto under the section “Information Contained in the Management Information Circular – Information Incorporated by Reference”.

“Enerflex Annual Management Information Circular” has the meaning ascribed thereto under the section “Information Contained in the Management Information Circular – Information Incorporated by Reference”.

“Enerflex Annual MD&A” has the meaning ascribed thereto under the section “Information Contained in the Management Information Circular – Information Incorporated by Reference”.

“Enerflex Annual Report” has the meaning ascribed thereto under the section “Information Contained in the Management Information Circular – Information Incorporated by Reference”.

“Enerflex Board” means the Board of Directors of Enerflex.

“Enerflex Common Shares” means the common shares in the capital of Enerflex.

“Enerflex Interim Financial Statements” has the meaning ascribed thereto under “Information Contained in the Management Information Circular – Information Incorporated by Reference”.

“Enerflex Interim MD&A” has the meaning ascribed thereto under “Information Contained in the Management Information Circular – Information Incorporated by Reference”.

“Enerflex Option Plan” means the Amended and Restated 2013 Stock Option Plan, as approved by Enerflex Shareholders on April 16, 2014, amended and restated by the Enerflex Board effective December 6, 2017, and further amended and restated by the Enerflex Board on February 21, 2020, with the amendment to increase the total number of Enerflex Common Shares reserved for issuance under the Enerflex Option Plan approved by the Enerflex Shareholders on May 8, 2020.

“Enerflex Options” means options to purchase Enerflex Common Shares granted under the Enerflex Option Plan.

“Enerflex Restricted Share Award” means a restricted share award of Enerflex subject to the same terms and conditions as the corresponding Exterran Restricted Share Award immediately prior to the Effective Time.

“Enerflex RSU Award” means a restricted stock unit award of Enerflex subject to the same terms and conditions as the corresponding Exterran RSU Award or Exterran Performance Share Award, as applicable, immediately prior to the Effective Time.

“Enerflex RSU Plan” means the Restricted Share Unit Plan of Enerflex, as amended from time to time.

“Enerflex Senior Notes” means the U.S.$105 million and CAD$15 million of senior notes due December 2024 issued by Enerflex under the note purchase agreement dated December 15, 2017 and the U.S.$70 million and CAD$30 million of senior notes due December 2027 issued by Enerflex under the note purchase agreement dated December 15, 2017.

 

 

7

“Enerflex Shareholder Approval” means the affirmative vote of a majority of the votes cast by Enerflex Shareholders represented in person or by proxy and entitled to vote on such matter in favour of the approval of the Share Issuance Resolution at the Enerflex Special Meeting, or any adjournment or postponement thereof.

“Enerflex Shareholders” means holders of Enerflex Common Shares.

“Enerflex Special Meeting” means the special meeting of Enerflex Shareholders to be held on October 11, 2022.

“Enerflex Superior Proposal” means an unsolicited, bona fide written Alternative Proposal, made after the date of the Merger Agreement, that the Enerflex Board determines in good faith, after consultation with Enerflex’s outside legal and financial advisors, and considering all legal, financial, financing and regulatory aspects of the proposal, the identity of the Person(s) making the proposal, the conditions to the closing and the timing and likelihood of the proposal being consummated in accordance with its terms, and any revisions to the terms of the Merger Agreement and the Transaction contemplated by the Merger Agreement proposed by Exterran during the Enerflex Superior Proposal Notice Period, would, if consummated, result in a transaction (i) that is more favourable to the Enerflex Shareholders from a financial point of view than the transactions contemplated by the Merger Agreement and (ii) that is reasonably likely to be completed, taking into account any regulatory, financing or approval requirements, and any other aspects considered relevant by the Enerflex Board. References to an “Alternative Proposal” in this definition will include the following substitutions (x) “20%” in the definition of “Alternative Proposal” will be deemed to be “80%” and (y) “80%” in the definition of “Alternative Proposal” will be deemed to be “20%”.

“Enerflex Superior Proposal Notice” has the meaning ascribed to “Parent Superior Proposal Notice” in section 5.6(e) of the Merger Agreement.

“Enerflex Superior Proposal Notice Period” means the end of the five-Business Day period following the delivery of an Enerflex Superior Proposal Notice.

“Enerflex Voting Agreements” means the voting and support agreements separately entered into between Exterran and each director and executive officer of Enerflex (as at January 24, 2022, the date on which the Transaction was announced) concurrently with the execution and delivery of the Merger Agreement, pursuant to which each such director and executive officer has agreed, among other things, to vote or cause to be voted all of their respective Enerflex Common Shares, beneficially owned or controlled, in favour of the Share Issuance Resolution and to otherwise support the Transaction and other related matters to be considered at the Enerflex Special Meeting.

“Exchange Act” means the Securities Exchange Act of 1934.

“Exchange Agent” means TSX Trust Company or a bank or trust company designated by Enerflex and Merger Sub to serve as exchange agent under the Merger Agreement.

“Exchange Ratio” means 1.021.

“Exterran” means Exterran Corporation, a corporation existing under the laws of the State of Delaware.

“Exterran Adjournment Proposal” means the proposal to approve of the adjournment of the Exterran Stockholder Meeting from time to time to solicit additional proxies in favour of the Exterran Merger Proposal, if there are insufficient votes at the time of such adjournment to approve the Exterran Merger Proposal, to ensure that any supplement or amendment to the Proxy Statement/Prospectus is timely provided to Exterran Stockholders or if otherwise determined by the chairperson of the meeting to be necessary or appropriate.

“Exterran Board” means the Board of Directors of Exterran.

“Exterran Common Stock” means the common stock, par value $0.01 per share, of Exterran.

“Exterran Compensation Proposal” means the approval, on a non-binding advisory basis, of the compensation that may be paid or become payable to Exterran’s named executive officers that is based or otherwise relates to the Merger.

“Exterran Equity Awards” means Exterran Restricted Share Awards, Exterran RSU Awards, and Exterran Performance Share Awards.

“Exterran Merger Proposal” means the proposal to adopt the Merger Agreement that Exterran Stockholders will vote on at the Exterran Stockholder Meeting.

“Exterran Merger Proposal Approval” means the affirmative vote of the holders of a majority of the outstanding shares of Exterran Common Stock in favour of the Exterran Merger Proposal at the Exterran Stockholder Meeting.

“Exterran Performance Share Awards” means an award of restricted stock units in respect of shares of Exterran Common Stock granted subject to performance targets.

 

 

8

“Exterran Phantom Units” means the phantom units granted under Exterran’s omnibus incentive plan.

“Exterran Restricted Share Awards” means an award of shares of Exterran Common Stock granted subject to any vesting, forfeiture or other lapse restrictions.

“Exterran RSU Awards” means an award of restricted stock units (excluding any Exterran Performance Share Award) in respect of shares of Exterran Common Stock.

“Exterran Stockholder Approval” means the affirmative vote of the holders of a majority of the outstanding shares of Exterran Common Stock in favour of the adoption of the Merger Agreement.

“Exterran Stockholder Meeting” means the meeting of Exterran Stockholders scheduled to be held on October 11, 2022 for the purpose of obtaining the Exterran Stockholder Approval.

“Exterran Stockholder Meeting Proposals” means the Exterran Merger Proposal, the Exterran Compensation Proposal and the Exterran Adjournment Proposal.

“Exterran Stockholders” means, collectively, holders of shares of Exterran Common Stock.

“Exterran Superior Proposal” means an unsolicited, bona fide written Alternative Proposal, made after the date of the Merger Agreement, that the Exterran Board determines in good faith, after consultation with Exterran’s outside legal and financial advisors, and considering all legal, financial, financing and regulatory aspects of the proposal, the identity of the Person(s) making the proposal, the conditions to the closing and the timing and likelihood of the proposal being consummated in accordance with its terms, and any revisions to the terms of the Merger Agreement and the Transaction contemplated by the Merger Agreement proposed by Enerflex during the Exterran Superior Proposal Notice Period, would, if consummated, result in a transaction (A) that is more favourable to Exterran’s stockholders from a financial point of view than the transactions contemplated by the Merger Agreement and (B) that is reasonably likely to be completed, taking into account any regulatory, financing or approval requirements and any other aspects considered relevant by the Exterran Board. References to an “Alternative Proposal” in this definition will include the following substitutions (x) “20%” in the definition of “Alternative Proposal” will be deemed to be “80%” and (y) “80%” in the definition of “Alternative Proposal” will be deemed to be “20%”.

“Exterran Superior Proposal Notice” has the meaning ascribed thereto in section 5.5(k) of the Merger Agreement.

“Exterran Superior Proposal Notice Period” means the end of the five-Business Day period following the delivery of an Exterran Superior Proposal Notice.

“Exterran Voting Agreements” means the voting and support agreements separately entered into between Enerflex and each director and executive officer of Exterran, concurrently with the execution and delivery of the Merger Agreement, pursuant to which each such director and executive officer has agreed, among other things, to vote or cause to be voted all of their respective Exterran Common Stock, beneficially owned or controlled, in favour of the adoption of the Merger Agreement, and to otherwise support the Transaction and other related matters to be considered at the Exterran Stockholder Meeting.

“Form F-4” means the U.S. registration statement on Form F-4 pursuant to which the offer and sale of Enerflex Common Shares in connection with the Transaction have been registered pursuant to the Securities Act and in which the Proxy Statement / Prospectus is included, together with any supplements thereto.

“Governmental Approvals” means all permits, consents, waivers, approvals, clearances, authorizations, and expirations or terminations of waiting periods necessary to be obtained from the antitrust authorities of the U.S., Colombia and Nigeria and any other Governmental Entity in order to consummate the Transaction.

“Governmental Entity” means any U.S. or foreign, state, provincial, territorial or local governmental or regulatory agency, commission, court, body, entity or authority.

“HSR Act” means Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“HSR Act Approval” means the Governmental Approval by the United States Federal Trade Commission/Department of Justice of the Transaction pursuant to the requirements of the HSR Act.

“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board.

“King and Spalding” means King and Spalding LLP, Exterran’s legal advisor.

“Law” means any federal, state, provincial, local, and foreign law, statute, ordinance, rule, resolutions, determinations, injunctions, common law rulings, awards (including awards of any arbitrator) regulation, judgment, Order, injunction or decree of any Governmental Entity.

“Management Information Circular” means this management information circular of Enerflex dated September 8, 2022 to be sent to Enerflex Shareholders in connection with the Enerflex Special Meeting.

 

9

“Material Adverse Effect” refers to, under the Merger Agreement and with respect to Exterran or Enerflex, as applicable, an event, change, circumstance, fact, condition, occurrence, effect or development that has, or would reasonably be expected to have, a Material Adverse Effect on (x) the business, operations, or condition (financial or otherwise) of Exterran or Enerflex, and their respective Subsidiaries, as applicable, taken as a whole, or (y) would or may reasonably be expected to, prevent, materially delay, or materially impair the ability of Exterran or Enerflex, as applicable to consummate the transaction (including the merger), but, in the case of each of clauses (x) and (y), will not include events, changes, occurrences, effects, or developments relating to (a) changes in general economic or political conditions or the securities, equity, credit, or financial markets in general, or changes in or affecting domestic or foreign interest or exchange rates, (b) any decline in the market price or trading volume of the respective party’s common stock or common shares, as applicable, or any change in the credit rating of such party or any of its securities (provided, that the facts and circumstances underlying any such decline or change may be taken into account in determining whether a Material Adverse Effect has occurred to the extent not otherwise excluded by the definition thereof), (c) changes or developments in the industries in which Exterran or Enerflex, as applicable, or their respective Subsidiaries operate, (d) changes in law or interpretations thereof or enforcement thereof after the date of the Merger Agreement, (e) the execution, delivery, or performance of the Merger Agreement or the public announcement or pendency or consummation of the merger or other transactions contemplated by the Merger Agreement, including the impact thereof on the relationships of Exterran or Enerflex, as applicable, or any of their respective Subsidiaries with employees, partnerships, customers, suppliers, or Governmental Entities, (f) compliance with the terms of, or the taking or omission of any action required by, the Merger Agreement or consented to (after disclosure to the respective party of all material and relevant facts and information) or requested by such party in writing, (g) any act of civil unrest, civil disobedience, war, terrorism, cyberterrorism, military activity, sabotage, or cybercrime, including an outbreak or escalation of hostilities involving Canada or the U.S., as applicable, or any other governmental entity or the declaration by Canada or the U.S., as applicable, or any other governmental entity of a national emergency or war, or any worsening or escalation of any such conditions threatened or existing on the date of the Merger Agreement, (h) any hurricane, tornado, flood, earthquake, natural disasters, acts of God or other comparable events, (i) any pandemic, epidemic, or disease outbreak (including COVID-19) or other comparable events, (j) changes in IFRS or U.S. GAAP or the interpretation or enforcement after the date of the Merger Agreement, (k) any litigation relating to or resulting from the Merger Agreement or the transactions contemplated hereby; or (l) any failure to meet internal or published projections, forecasts, guidance or revenue or earning predictions; (provided, that the facts and circumstances underlying any such failure may be taken into account in determining whether a Material Adverse Effect has occurred to the extent not otherwise excluded by the definition thereof); except, with respect to clauses (a), (c), (g), (h), (i), and (j), if the impact thereof is materially and disproportionately adverse to Exterran or Enerflex, as applicable, and their respective Subsidiaries, taken as a whole, relative to the impact thereof on the operations in the industry that Exterran or Enerflex, as applicable, and other participants conduct business, the incremental material disproportionate impact may be taken into account in determining whether there has been a Material Adverse Effect.

“Merger” means the merger of Merger Sub with and into Exterran with the Surviving Corporation becoming a direct wholly-owned Subsidiary of Enerflex on the terms and subject to the conditions set forth in the Merger Agreement.

“Merger Agreement” means the agreement and plan of merger dated January 24, 2022, by and among Enerflex, Merger Sub, and Exterran, the full text of which is attached as “Appendix B – Merger Agreement”.

“Merger Consideration” means 1.021 validly issued, fully paid and non-assessable Enerflex Common Shares issuable in exchange for each share of Exterran Common Stock pursuant to the Merger Agreement.

“Merger Sub” means Enerflex US Holdings Inc., a corporation existing under the laws of the State of Delaware that is a direct wholly-owned Subsidiary of Enerflex.

“MI 61-101” has the meaning ascribed thereto under the section “Securities Law Matters – Multilateral Instrument 61-101”.

“Morrow Sodali” means the strategic shareholder advisor and proxy solicitation agent engaged by Enerflex.

“NASDAQ” means NASDAQ, Inc.

“Nigeria Approval” means the Governmental Approval required by the Antitrust Laws in Nigeria.

“Norton Rose Fulbright” means Norton Rose Fulbright Canada LLP or Norton Rose Fulbright US LLP, as applicable, each being Enerflex’s legal advisor.

“NYSE” means the New York Stock Exchange.

“Order” means any order, writ, decree, judgment, award, injunction, ruling, settlement, notice or stipulation issued, promulgated, made, rendered, or entered into by or with any Governmental Entity of competent jurisdiction.

“Person” means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity, group (as such term is used in section 13 of the Exchange Act), or organization, including a Governmental Entity, and any permitted successors and assigns of such person.

 

10

“Proxy Statement/Prospectus” means the proxy statement relating to the Exterran Stockholder Meeting, which will be used as a prospectus of Enerflex with respect to the Enerflex Common Shares issuable in connection with the Merger (together with any amendments or supplements thereto).

“RBC” means RBC Dominion Securities Inc., the financial advisor to Enerflex in connection with the Transaction.

“RBC Engagement Agreement” means the agreement dated February 16, 2021 entered into by Enerflex and RBC pursuant to which Enerflex engaged RBC as a financial advisor in connection with the Transaction.

“RBC Fairness Opinion” means the written and verbal fairness opinion provided by RBC to the Enerflex Board on January 23, 2022.

“Record Date” means September 9, 2022.

“Regulation FD” means Regulation FD (Fair Disclosure) promulgated by the SEC under the Exchange Act.

“Regulation S” means Regulation S promulgated by the SEC under the Exchange Act.

“Regulation S-K” means Regulation S-K promulgated by the SEC under the Exchange Act.

“Required Antitrust Approvals” means the HSR Act Approval, the Colombia Approval and the Nigeria Approval.

“Rule 3b-4” means Rule 3b-4 under the Exchange Act.

“SEC” means the Securities and Exchange Commission.

“Section 721” means section 721 of the United States Defense Production Act of 1950 (codified at 50 U.S.C. § 4565), and the regulations promulgated thereunder (31 C.F.R. Parts 800-802).

“Securities Act” means the Securities Act of 1933.

“Share Issuance Resolution” means the ordinary resolution to be considered and if deemed acceptable, approved, at the Enerflex Special Meeting, the full text of which is set out in “Appendix A – Resolution to be Approved at the Enerflex Special Meeting”.

“Subsidiaries” means, with respect to any Person, any corporation, limited liability company, partnership, or other organization, whether incorporated or unincorporated, of which (a) such first person directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions or (b) such first person directly or indirectly has the power to appoint a general partner, manager or managing member or others performing similar functions, or otherwise has the power to direct the policies, management and affairs of such other person.

“Superior Proposal” means the Exterran Superior Proposal or Enerflex Superior Proposal as applicable.

“Surviving Corporation” means Exterran as the company that, under the Merger Agreement, survives the merger under Delaware law as a direct wholly-owned Subsidiary of Enerflex at the Effective Time.

“Transaction” means the Merger, and any transactions completed pursuant to, or in furtherance of, the Merger Agreement.

“Treasury Regulations” refers to U.S. Treasury regulations promulgated under the Code.

“TSX” means the Toronto Stock Exchange.

“TSX Company Manual” means the TSX Company Manual setting forth the rules and policies of the TSX, as amended from time to time.

“U.S.” means the United States of America.

“U.S. GAAP” means U.S. generally accepted accounting principles.

“Wells Fargo Securities” means Wells Fargo Securities LLC, the financial advisor to Exterran in connection with the Transaction.

 

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QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND THE ENERFLEX SPECIAL MEETING

The following questions and answers are intended to briefly address some commonly asked questions regarding the Transaction and matters to be addressed at the Enerflex Special Meeting. These questions and answers may not address all questions that may be important to you. To better understand these matters, and for a description of the legal terms governing the Transaction, you should carefully read this entire Management Information Circular, including the attached appendices, as well as the documents that have been incorporated by reference in this Management Information Circular. For more information, see the section entitled “Information Contained in this Management Information Circular”.

Q: Why am I receiving this Notice of Special Meeting and Management Information Circular?

As required by law, you are receiving this Notice of Special Meeting and Management Information Circular in connection with the solicitation by or on behalf of the management of Enerflex of proxies of Enerflex Shareholders to vote in respect of the Share Issuance Resolution.

Q: What am I being asked to vote on and why is it important?

The Enerflex Special Meeting is being held so that Enerflex Shareholders may consider an ordinary resolution, the full text of which is set out in “Appendix A – Resolution to be Approved at the Enerflex Special Meeting”, approving the issuance of the Aggregate Enerflex Shares.

Enerflex Shareholders are required pursuant to section 611(c) of the TSX Company Manual to approve the Share Issuance Resolution because the number of Enerflex Common Shares issuable pursuant to the Transaction exceeds 25% of the issued and outstanding Enerflex Common Shares on a non-diluted basis. Based on the number of Enerflex Common Shares and shares of Exterran Common Stock (including shares to be issued pursuant to Exterran Phantom Units) outstanding on September 8, 2022, Enerflex expects to issue up to approximately 34,013,055 Enerflex Common Shares to Exterran Stockholders at the Effective Time to satisfy the Merger Consideration representing approximately 37.9% of the issued and outstanding Enerflex Common Shares on a non-diluted basis as of September 8, 2022. Accordingly, section 611(c) of the TSX Company Manual requires that the Share Issuance Resolution receive the Enerflex Shareholder Approval. Enerflex will not be able to satisfy the listing requirements of the TSX unless and until the Share Issuance Resolution is approved. The issuance of up to approximately 34,013,055 Enerflex Common Shares to Exterran Shareholders at the Effective Time to satisfy the Merger Consideration will represent approximately 27.5% of the issued and outstanding Enerflex Common Shares on a non-diluted basis after giving effect to the Transaction.

Based on the number of Enerflex Common Shares and the number of shares of Exterran Common Stock (including shares to be issued pursuant to Exterran Phantom Units) outstanding on September 8, 2022, following completion of the Transaction, former Exterran Stockholders are expected to own approximately 26.8% of the total issued and outstanding Enerflex Common Shares on a fully diluted basis.

Your vote is very important, regardless of the number of Enerflex Common Shares that you own. The approval of the Share Issuance Resolution is a condition to the obligations of the parties to complete the Transaction under the Merger Agreement.

Q. What is the Transaction that the Share Issuance Resolution relates to?

Pursuant to the Merger Agreement, Enerflex agreed to acquire Exterran through the merger of Merger Sub with and into Exterran, with the Surviving Corporation becoming a direct wholly-owned Subsidiary of Enerflex. Under the Merger Agreement, at the Effective Time: (a) each share of Exterran Common Stock, issued and outstanding immediately prior to the Effective Time (other than certain excluded shares as described in the Merger Agreement) will be converted into the right to receive the Exchange Ratio of validly issued, fully paid and non-assessable Enerflex Common Shares; (b) each Exterran Restricted Share Award, issued and outstanding immediately prior to the Effective Time, will be assumed by and remain at the Surviving Corporation and will be converted into an Enerflex Restricted Share Award in respect of that number of Enerflex Common Shares (rounded to the nearest whole common share) equal to the product of (i) the number of shares of Exterran Common Stock subject to such Exterran Restricted Share Award immediately prior to the Effective Time multiplied by (ii) the Exchange Ratio; (c) each Exterran RSU Award, issued and outstanding immediately prior to the Effective Time, will be assumed by and remain at the Surviving Corporation and will be converted into an Enerflex RSU Award, in respect of that number of Enerflex Common Shares (rounded to the nearest whole common share) equal to the product of (i) the number of shares of Exterran Common Stock subject to such Exterran RSU Award immediately prior to the Effective Time multiplied by (ii) the Exchange Ratio; and (d) each Exterran Performance Share Award, that is outstanding immediately prior to the Effective Time will be assumed by and remain at the Surviving Corporation and will be converted into an Enerflex RSU Award in respect of that number of Enerflex Common Shares (rounded to the nearest whole common share) equal to the product of (i) the number of shares of Exterran Common Stock subject to such Exterran Performance Share Award immediately prior to the Effective Time multiplied by (ii) the Exchange Ratio.

Q: When and where will the Enerflex Special Meeting be held?

Enerflex will hold its Enerflex Special Meeting on October 11, 2022 at 9:00 a.m. (MDT) at The Westin Calgary, 320 4^th Avenue S.W., Calgary, Alberta. Enerflex Shareholders will be able to vote on all business properly brought before the Enerflex Special Meeting and submit questions for consideration as they would at an in person shareholders’ meeting. Enerflex Shareholders that vote by proxy ahead of a shareholders’ meeting will be able to do so in the usual way.

 

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Q: Does the Enerflex Board recommend that I vote FOR the Share Issuance Resolution?

Yes. At its meeting held on January 23, 2022, after due consideration and extensive consultation with Enerflex’s management and outside legal and financial advisors to Enerflex, and following review and consideration of, among other things, the RBC Fairness Opinion, the Enerflex Board unanimously (i) determined that it is in the best interests of Enerflex to enter into the Merger Agreement, (ii) approved the execution, delivery, and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger and the Debt Financing, and (iii) resolved to recommend that the Enerflex Shareholders approve the Share Issuance Resolution and directed that such matter be submitted for consideration by the Enerflex Shareholders at the Enerflex Shareholder Meeting. In considering the Transaction and making the recommendation to the Enerflex Shareholders, the Enerflex Board considered the business, assets and liabilities, results of operations, financial performance, strategic direction, and prospects of Enerflex and Exterran, with a view to the best interests of Enerflex.

Accordingly, the Enerflex Board unanimously recommends that Enerflex Shareholders vote FOR the Share Issuance Resolution. For further information regarding Enerflex’s reasons for the Transaction, see the section entitled “The Transaction – Enerflex’s Reasons for the Transaction” and “Risk Factors”.

Q: What are Enerflex’s reasons for the Transaction?

In unanimously approving the Merger Agreement and the consummation of the Transaction and determining that the Merger Agreement and the Transaction are in the best interests of Enerflex and fair to the Enerflex Shareholders, the Enerflex Board considered a number of factors (which are not necessarily presented in order of relative importance), including but not limited to the following:

 

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the anticipated benefits of the Transaction derived from the financial and operational synergies;

 

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the consideration of alternatives to pursuing the Transaction including continuing to operate as a standalone entity;

 

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Enerflex’s proven leadership team;

 

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the support of Exterran Stockholders including significant shareholders and all of Exterran’s directors and executive officers; and

 

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the adequate termination provisions in the Merger Agreement including the payment of a termination fee in certain situations.

In connection with its deliberations relating to the Transaction, the Enerflex Board also considered potential risks and negative factors concerning the transactions contemplated by the Merger Agreement and after consideration of these factors, the Enerflex Board unanimously determined that, overall, the potential benefits of the Transaction outweighed the potential risks. For further information regarding Enerflex’s reasons for the Transaction and the potential risks and negative factors considered by the Enerflex Board, see the section entitled “The Transaction – Enerflex’s Reasons for the Transaction”.

Q: How will Enerflex’s directors and executive officers vote?

All of the directors and executive officers of Enerflex who held such positions as at January 24, 2022, the date on which the Transaction was announced, collectively holding, to Enerflex’s knowledge, approximately 0.75% of the outstanding Enerflex Common Shares as of September 8, 2022, have entered into the Enerflex Voting Agreements pursuant to which they have agreed, among other things, to vote their Enerflex Common Shares FOR the Share Issuance Resolution at the Enerflex Special Meeting. Although Messrs. Savidant and Boswell, and Ms. Wesley did not stand for re-election at the annual meeting of Enerflex Shareholders held on May 4, 2022, they remain bound by the terms of the Enerflex Voting Agreements.

Q: What will Exterran Stockholders receive if Enerflex’s acquisition of Exterran is completed?

Under the Merger Agreement, at the Effective Time, each share of Exterran Common Stock that is outstanding immediately prior to the Effective Time (other than certain excluded shares as described in the Merger Agreement) will be converted automatically into the right to receive the Merger Consideration, being the Exchange Ratio of 1.021 validly issued, fully paid and non-assessable Enerflex Common Shares. As part of the Merger Consideration, each holder of Exterran Common Stock who would otherwise have been entitled to receive as a result of the Transaction a fraction of an Enerflex Common Share will receive, in lieu of such fractional Enerflex Common Share, cash in an amount representing such holder’s proportionate interest in the net proceeds from the sale by the Exchange Agent, on behalf of all such holders, of the aggregated number of fractional Enerflex Common Shares that would have otherwise been issuable to such holders. Any cash amounts to be received by holders of shares of Exterran Common Stock in lieu of any fractional Enerflex Common Shares will be rounded to the nearest cent.

The Exchange Ratio is fixed and will not be adjusted for fluctuations in the market price of Enerflex Common Shares or shares of Exterran Common Stock between the date of the Merger Agreement and the Closing. Enerflex has applied to list the Enerflex Common Shares issued in connection with the Transaction on the NYSE, under the symbol “EFXT” and has applied to list the Enerflex Common Shares issuable pursuant to the Transaction on the TSX, under the symbol “EFX”. Based on the number of Enerflex Common Shares and the number of shares of Exterran Common Stock (including shares to be issued pursuant to

 

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Exterran Phantom Units) outstanding on September 8, 2022, following completion of the Transaction, former Exterran Stockholders are expected to own approximately 26.8% of the outstanding Enerflex Common Shares and persons who were Enerflex Shareholders would own approximately 73.2% of the outstanding Enerflex Common Shares on a fully diluted basis. Exterran Common Stock are traded on the NYSE under the symbol “EXTN”. We encourage you to obtain current quotes for the Enerflex Common Shares on the TSX and the Exterran Common Stock on the NYSE.

Because Enerflex will issue a fixed number of Enerflex Common Shares in exchange for each share of Exterran Common Stock, the value of the Merger Consideration that holders of shares of Exterran Common Stock will receive in the Transaction will depend on the market price of Enerflex Common Shares at the Effective Time and will not be known at the time that the Enerflex Shareholders vote on the Share Issuance Resolution and the Exterran Stockholders vote on the Exterran Stockholder Meeting Proposals and may be subject to fluctuation. The market price of Enerflex Common Shares that holders of shares of Exterran Common Stock will receive at the Effective Time could be greater than, less than, or the same as the market price of Enerflex Common Shares on the date of this Management Information Circular or on the date of the Enerflex Special Meeting.

Based on the closing price of Enerflex Common Shares on the TSX of $7.90 on January 21, 2022, the last full trading day prior to the date of the Merger Agreement, the implied value of the Merger Consideration to holders of shares of Exterran Common Stock was approximately $8.066 per share of Exterran Common Stock. On September 8, 2022, the date of this Management Information Circular, the closing price of Enerflex Common Shares on the TSX was $6.56 per share, resulting in an implied value of the Merger Consideration to holders of shares of Exterran Common Stock of $6.6978 per share of Exterran Common Stock. For more information regarding the Merger Consideration to be received by Exterran Stockholders if the Transaction is completed, see the section entitled “The Merger Agreement – Merger Consideration”.

Q: How will Enerflex fund the Transaction?

Enerflex expects to issue up to approximately 34,013,055 Enerflex Common Shares to Exterran Stockholders at the Effective Time representing approximately 27.5% of the issued and outstanding Enerflex Common Shares on a non-diluted basis after giving effect to the Transaction.

As of December 31, 2021, Enerflex and its Subsidiaries had total long-term debt of approximately $331 million (U.S.$261 million converted at the Bank of Canada exchange rate on December 31, 2021) and Exterran had total long-term debt of approximately U.S.$572 million ($725 million converted at the Bank of Canada exchange rate on December 31, 2021). Pursuant to the Debt Commitment Letter, RBC Capital Markets and various financial institutions have committed to provide a new U.S.$700 million revolving credit facility and an unsecured one-year bridge loan facility in an aggregate principal amount of U.S.$925 million to bridge the Debt Financing required to refinance the Exterran debt, to replace the existing Credit Facility, to repay outstanding Enerflex debt and to fund transaction fees and expenses associated with the Transaction. The bridge loan will automatically convert to a four-year term loan after one year if not replaced by alternative debt securities.

Enerflex expects to fully replace, or reduce the commitments under, the bridge facility with an offering of debt securities before the closing of the Transaction.

For further information see the section entitled “Summary – Financing”.

Q: Following the Closing, what percentage of the outstanding shares of Enerflex will former Exterran Stockholders own?

Based on the number of Enerflex Common Shares and the number of shares of Exterran Common Stock (including shares to be issued pursuant to Exterran Phantom Units) on September 8, 2022, following completion of the Transaction, former Exterran Stockholders are expected to own approximately 26.8% of the total issued and outstanding Enerflex Common Shares and persons who were Enerflex Shareholders are expected to own approximately 73.2% of the total issued and outstanding Enerflex Common Shares, in each case, on a fully diluted basis. The relative ownership interests of Enerflex Shareholders and former holders of shares of Exterran Common Stock in Enerflex immediately following the Transaction will depend on the number of Enerflex Common Shares and shares of Exterran Common Stock issued and outstanding immediately prior to Closing.

Q: If I am an Enerflex Shareholder, will I receive any securities as part of Enerflex’s acquisition of Exterran?

No. Regardless of whether the Transaction closes, Enerflex Shareholders will continue to hold their Enerflex Common Shares.

Q: Will the Enerflex Board be reconstituted in connection with Enerflex’s acquisition of Exterran?

Upon completion of the Transaction, all current members of the Enerflex Board will continue to serve as directors of Enerflex and one of the directors of Exterran, will be appointed to the Enerflex Board.

Under the Merger Agreement, Enerflex has agreed to take all actions necessary to designate and appoint one of the directors of Exterran to serve as a director on the Enerflex Board immediately after the Effective Time, until such director’s successor is elected and qualified or such director’s earlier death, resignation or removal, in each case in accordance with Enerflex’s constating documents.

 

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Following the above-noted appointment, the Enerflex Board is expected to consist of 10 directors following the Effective Date, composed of the nine current members of the Enerflex Board and one current member of the Exterran Board. For additional information about Enerflex’s management and board of directors after the Closing, see the section entitled “The Transaction – Board of Directors and Management of Enerflex after the Transaction” and “Appendix G – Information Concerning the Combined Company”.

The Merger Agreement provides that the directors of Merger Sub as of immediately prior to the Effective Time will serve as the directors of the Surviving Corporation as of the Effective Time. For additional information about the Surviving Corporation’s management and board of directors after the Closing, see the section entitled “The Transaction – Board of Directors and Management of Surviving Corporation after the Transaction”.

Q: Is the obligation of each of Enerflex and Exterran to effect the Transaction subject to any conditions?

Yes. The respective obligations of Enerflex and Exterran to close the Transaction are subject to the satisfaction or waiver of a number of customary conditions. These conditions include, among other things: (i) receipt of the Enerflex Shareholder Approval; (ii) receipt of the Exterran Stockholder Approval; (iii) the Form F-4 having become effective in accordance with the provisions of the Securities Act and no stop order suspending the effectiveness of the Form F-4 having been issued and remaining in effect and no proceeding to that effect having been commenced, unless subsequently withdrawn; (iv) no Governmental Entity of competent jurisdiction having enacted, issued or promulgated any law, injunction or similar order that remains in effect that prohibits or makes illegal the consummation of the Transaction; (v) the Required Antitrust Approvals having been obtained or deemed obtained as a result of the expiration of all statutory waiting periods, as required; (vi) the Enerflex Common Shares issuable pursuant to the Transaction having been approved for listing on the NYSE or NASDAQ, subject to official notice of issuance, and conditionally approved for listing on the TSX, subject to customary listing requirements; (vii) the accuracy of each party’s representations and warranties, subject to certain materiality standards set forth in the Merger Agreement; (viii) performance by each party in all material respects with such party’s obligations under the Merger Agreement; and (ix) with respect to Enerflex, the absence of an Exterran Material Adverse Effect, and with respect to Exterran, the absence of an Enerflex Material Adverse Effect (as such terms are defined in the Merger Agreement).

For a more detailed discussion of the conditions to the Closing, see the section entitled “The Merger Agreement – Conditions that must be Satisfied or Waived for the Transaction to Occur”.

Q: Are there risks associated with Enerflex’s acquisition of Exterran?

Yes. Before making a decision on whether and how to vote, you are urged to carefully read the section entitled “Risk Factors”. You also should read and carefully consider the risk factors with respect to Enerflex and Exterran that are contained in the documents that are incorporated by reference in this Management Information Circular.

Q: What regulatory approvals are required to complete Enerflex’s acquisition of Exterran?

Enerflex and Exterran have agreed to promptly obtain all necessary actions or nonactions, authorizations, permits, waivers, consents, clearances, approvals, and expirations or terminations of waiting periods and make all necessary registrations, notices, notifications, petitions, applications, reports and other filings and take all steps as may be necessary, proper or advisable to obtain an approval, clearance or waiver from, or to avoid an action or proceeding by, any Governmental Entity.

Enerflex and Exterran are not currently aware of any material consents or other filings that are required prior to the Merger other than those described in this Management Information Circular. Enerflex and Exterran received the HSR Act Approval on March 11, 2022. Furthermore, Enerflex received conditional clearance from the Nigerian antitrust authorities on April 27, 2022 and the final Nigeria Approval on May 12, 2022. Finally, the Colombia Approval was received on March 7, 2022.

The Aggregate Enerflex Shares were conditionally approved for listing on the NYSE on September 6, 2022, subject to official notice of issuance, and conditionally approved for listing on the TSX on September 7, 2022, subject to customary listing requirements.

The Form F-4 became effective in accordance with the provisions of the Securities Act on September 8, 2022.

For a more detailed discussion of the regulatory approvals required to close the Transaction, see the sections entitled “The Transaction – Regulatory Approvals Required for the Transaction”, “The Merger Agreement – Conditions that Must be Satisfied or Waived for the Transaction to Occur”, and “The Merger Agreement – Regulatory Filings and Efforts; Other Actions” and for more information regarding factors that could impact the Closing, see the section entitled “Risk Factors”.

Q: When is the Transaction expected to be completed?

In addition to regulatory, shareholder, and stockholder approvals, other important conditions to the Closing exist.

Subject to the satisfaction or waiver of the closing conditions described under the section entitled “The Merger Agreement – Conditions that must be Satisfied or Waived for the Transaction to Occur”, including approval of the Share Issuance Resolution by

 

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Enerflex Shareholders and the adoption of the Merger Agreement by the Exterran Stockholders, the Transaction is expected to close in the second half of 2022. However, Enerflex cannot predict the actual date on which the Transaction will close, or if the Transaction will close at all, because the Closing is subject to conditions and factors outside the control of Enerflex, including the receipt of certain required regulatory approvals.

For more information on the required regulatory approvals and the conditions to the completion of the combination of Enerflex and Exterran, see the sections entitled “The Transaction – Regulatory Approvals Required for the Transaction”, “The Merger Agreement – Regulatory Filings and Efforts; Other Actions” and “The Merger Agreement – Conditions that Must be Satisfied or Waived for the Transaction to Occur”.

Q: Are any termination payments payable if the Merger Agreement is terminated?

If the Merger Agreement is terminated under specified circumstances as set out in the Merger Agreement, Exterran may be required to pay Enerflex a termination payment of U.S.$10.0 million. If the Merger Agreement is terminated under specified circumstances as set out in the Merger Agreement, Enerflex may be required to pay Exterran a termination payment of either U.S.$20.0 million or U.S.$30.0 million, less any amounts required to be withheld or deducted on account of taxes and depending on the circumstances.

For a more detailed discussion of the termination payments which may be payable by Enerflex and Exterran pursuant to the Merger Agreement, see the section entitled “The Merger Agreement – Termination or Abandonment of the Merger Agreement”.

Q: What happens if the Transaction is not completed?

If the Transaction is not completed, (i) Enerflex and Exterran will each remain public companies independent of one another, (ii) the Exterran Common Stock will continue to be listed and traded on the NYSE under the symbol “EXTN” and the Enerflex Common Shares will continue to be listed and traded on the TSX under the symbol “EFX”, (iii) Exterran Stockholders will not receive the Merger Consideration or any other consideration in connection with the Transaction, and their shares of Exterran Common Stock will remain outstanding, and (iv) holders of Exterran Equity Awards will continue to hold their Exterran Equity Awards and such Exterran Equity Awards will remain outstanding as equity awards of Exterran.

Q: Who can vote?

The Enerflex Board has fixed September 9, 2022 as the Record Date. If you held Enerflex Common Shares as at the close of business on September 9, 2022, you are entitled to receive notice of and vote your Enerflex Common Shares at the Enerflex Special Meeting on October 11, 2022, or at a reconvened meeting if the Enerflex Special Meeting is postponed or adjourned. Each Enerflex Common Share carries one vote on each item to be voted on at the Enerflex Special Meeting. As of September 8, 2022, there were 89,680,965 Enerflex Common Shares issued and outstanding.

Q: Who is soliciting my proxy?

Management of Enerflex is soliciting your proxy in connection with this Management Information Circular and the Enerflex Special Meeting. Proxies will be solicited by mail, in person, by telephone, or by electronic communications. To encourage you to vote, Enerflex employees may contact you by any of these methods. Enerflex employees will not receive a commission or any other form of compensation in connection with soliciting your proxy. Enerflex has retained Morrow Sodali to assist in connecting with Enerflex Shareholders and soliciting proxies from Enerflex Shareholders, in addition to providing informational support. In connection with these services, Morrow Sodali is expected to receive a fee not to exceed $100,000, plus reasonable out-of-pocket expenses. The cost of this solicitation will be borne by Enerflex. If you have any questions or require more information with regard to the procedures for voting your Enerflex Common Shares at the Enerflex Special Meeting, please contact Morrow Sodali, by telephone toll free in North America at 1.888.999.3016 or at 1.289.695.3075 outside of North America or by email at assistance@morrowsodali.com.

Q: What is the quorum for the Enerflex Special Meeting?

A quorum for the transaction of business at the Enerflex Special Meeting is at least two persons present in person at the Enerflex Special Meeting, each being a shareholder entitled to vote at the Enerflex Special Meeting or a duly appointed proxyholder for or representative of such a shareholder and together holding or representing in the aggregate of not less than 10% of the outstanding Enerflex Common Shares entitled to be voted at the Enerflex Special Meeting. If you submit a properly executed form of proxy, you will be considered part of the quorum.

Q: What vote is required to approve the Share Issuance Resolution?

The Transaction cannot close without Enerflex Shareholders approving the Share Issuance Resolution. Approval of the Share Issuance Resolution requires the affirmative vote of a majority of the votes cast in respect of the resolution by Enerflex Shareholders present in person or represented by proxy at the Enerflex Special Meeting.

The Enerflex Board unanimously recommends that Enerflex Shareholders vote FOR the Share Issuance Resolution.

 

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Your vote is very important, regardless of the number of Enerflex Common Shares you own. Whether or not you expect to attend the Enerflex Special Meeting, you should authorize a proxy to vote your Enerflex Common Shares as promptly as possible so that your Enerflex Common Shares may be represented and voted at the Enerflex Special Meeting.

Q: How to vote at the Enerflex Special Meeting?

If you are a registered Enerflex Shareholder at the close of business on the Record Date, you are entitled to receive notice of, and to attend and vote at the Enerflex Special Meeting. You will be entitled to vote all of the Enerflex Common Shares that you held on the Record Date at the Enerflex Special Meeting.

When Enerflex Common Shares are held jointly by two or more persons, those shares may be voted at the Enerflex Special Meeting (either in person or by proxy) by any one of those holders, or, alternatively, by all such holders jointly. Each Enerflex Common Share is entitled to one vote.

Q: How do I vote by proxy?

Before the Enerflex Special Meeting, Enerflex Shareholders of record as of the close of business on the Record Date may vote in advance of the Enerflex Special Meeting by completing the form of proxy or voting instruction form, as applicable, in accordance with the instructions provided therein and summarized below.

Registered Enerflex Shareholders

You are a registered Enerflex Shareholder if your Enerflex Common Shares are registered in your name. To vote by proxy in advance of the Enerflex Special Meeting, use the form of proxy that is provided to you with this Management Information Circular. Ensure that your completed proxy is received by TSX Trust Company no later than 9:00 a.m. (MDT) on October 6, 2022 or no later than 48 hours (excluding Saturdays, Sundays, and holidays) before the time set for the Enerflex Special Meeting if it is adjourned or postponed, by one of the following methods:

 

By Fax:		Fax your completed proxy to 1.866.781.3111 (toll free in Canada and the United States) or 416.368.2502 (within the 416-area code).
By Email:		Scan and email your completed proxy to: proxyvote@tmx.com.
By Internet:		You may vote through the internet at www.tsxtrust.com/vote-proxy. You will be required to enter the 13-digit control number located on your proxy.
By Mail:		Send your completed proxy to: TSX Trust Company Attention: Proxy Department P.O. Box 721 Agincourt, ON M1S 0A1

If you specify how you want to vote on your proxy form, your proxyholder must vote in accordance with such instructions. All Enerflex Common Shares represented at the Enerflex Special Meeting by properly executed proxies will be voted in accordance with the instructions of the Enerflex Shareholder on any ballot that may be called for.

In the absence of any instruction, the management appointees whose names appear on the printed form of proxy will vote your Enerflex Common Shares in favour of the matters to be acted on. If you appoint another proxyholder and do not indicate how you want to vote, that proxyholder will decide how to vote your Enerflex Common Shares.

Beneficial Shareholders

You are a Beneficial Shareholder if you beneficially own Enerflex Common Shares that are held in the name of an intermediary, such as a bank, trust company, securities dealer or broker, trustee or administrator of a self-administered registered retirement savings plan, registered retirement income fund, registered education savings plan or similar plan. In many cases, Enerflex Common Shares owned by a Beneficial Shareholder are registered either in the name of an intermediary that the Beneficial Shareholder deals with, or in the name of a clearing agency (such as CDS Clearing and Depository Services Inc.) of which the intermediary is a participant. Each intermediary has its own process, so be sure to carefully follow the instructions on your voting instruction form.

To vote by proxy in advance of the Enerflex Special Meeting, use the voting instruction form that is provided to you with this Management Information Circular. Complete the voting instruction form by following the instructions therein. You can send your voting instructions by mail, phone, or on the internet. If you have voted on the voting instruction form, you may not vote at the Enerflex Special Meeting unless you properly revoke your voting instructions.

Additionally, Enerflex may use the Broadridge QuickVote^™ service, which involves non-objecting Beneficial Shareholders being contacted by Morrow Sodali, which is soliciting proxies on behalf of Enerflex’s management, to obtain voting instructions over the

 

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telephone, and relaying them to Broadridge (on behalf of the Enerflex Shareholder’s intermediary). While representatives of Morrow Sodali are soliciting proxies on behalf of Enerflex’s management, Enerflex Shareholders are not required to vote in the manner recommended by the Enerflex Board. The QuickVote^™ system is intended to assist Enerflex Shareholders in placing their votes, however, Enerflex Shareholders are not obligated to vote using the QuickVote^™ system, an Enerflex Shareholder may vote (or change or revoke their votes) at any other time and in any other applicable manner described in this Management Information Circular. Any voting instructions provided by an Enerflex Shareholder will be recorded and such Enerflex Shareholder will receive a letter from Broadridge (on behalf of the Enerflex Shareholder’s intermediary) as confirmation that their voting instructions have been accepted.

Enerflex Common Shares registered in the names of intermediaries can only be voted by those intermediaries at the direction of the Beneficial Shareholders who beneficially own the Enerflex Common Shares. Without specific instructions, intermediaries are prohibited from voting Enerflex Common Shares for an intermediary’s clients. Therefore, Beneficial Shareholders should ensure that instructions respecting the voting of their Enerflex Common Shares are communicated to the appropriate person well in advance of the Enerflex Special Meeting.

Q: What is the voting deadline?

To be effective, your proxy must be received before 9:00 a.m. (MDT) on October 6, 2022 or not less than 48 hours (excluding Saturdays, Sundays, and holidays) prior to the time fixed for holding the Enerflex Special Meeting (or any adjournment or postponement thereof). If you are a Beneficial Shareholder your completed voting instruction form must be returned on or before the deadline specified on the voting instruction form. The time limit for the deposit of proxies may be waived or extended by the Chair of the Enerflex Special Meeting at his or her sole discretion without notice. Late proxies may be accepted or rejected by the Chair of the Enerflex Special Meeting at his or her sole discretion without notice.

Enerflex reminds Enerflex Shareholders that only the most recently dated voting instructions will be counted and any prior dated instructions will be disregarded.

Q: Can I change my vote?

Registered Enerflex Shareholders - Revoking your Proxy

You may revoke your proxy at any time before it is acted on. To revoke your proxy, deliver a written statement revoking your proxy to TSX Trust Company on or before 9:00 a.m. (MDT) on October 6, 2022 (or the last Business Day before the Enerflex Special Meeting if it is adjourned or postponed). Alternatively, if you attend and vote in person at the Enerflex Special Meeting, any vote you cast at the Enerflex Special Meeting will revoke any proxy you previously submitted.

Beneficial Shareholders

You may revoke your voting instructions before they are acted on. Follow the procedures provided by your intermediary or service provider.

Q: Where can I find more information about Enerflex, Exterran, and the Transaction?

You can find out more information about Enerflex, Exterran, and the Transaction by reading this Management Information Circular and from various sources described in the sections entitled “Information Contained in Management Information Circular – Information Incorporated by Reference” and “Additional Information”.

Q: How may I contact Enerflex’s registrar and transfer agent?

You can contact TSX Trust Company, Enerflex’s registrar and transfer agent, by telephone, on the internet, or by mail using the following contact information:

 

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Phone: 1.800.387.0825 (toll-free in Canada and the United States) or 416.682.3860 (from outside Canada and the United States)

 

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Fax: 1.866.781.3111 (toll-free in Canada and the United States) or 416.368.2502 (within the 416-area code)

 

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Mail: Proxy Department, P.O. Box 721, Agincourt, Ontario M1S 0A1

 

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E-mail: shareholderinquiries@tmx.com

Q. Who do I contact if I have questions on how to vote?

Contact Morrow Sodali, Enerflex’s strategic shareholder advisor and proxy solicitation agent using the following contact information:

North American Toll-Free Number: 1.888.999.3016

Outside North America, Banks, Brokers, and Collect Calls: 1.289.695.3075

Email: assistance@morrowsodali.com

 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference in this Management Information Circular, including the matters addressed in the section entitled “Information Contained in Management Information Circular – Cautionary Statement Regarding Forward-Looking Statements”, you should carefully consider the following risks in deciding whether to vote for the Share Issuance Resolution. In addition, you should read and consider the risks associated with the businesses of Enerflex and Exterran because these risks will relate to the combined company following the Closing. Descriptions of some of these risks can be found in, in the case of Enerflex, the Enerflex Annual Report under the heading “Risk Factors”, the Enerflex AIF under the heading “Risk Factors” and “Appendix F – Information Concerning Enerflex Ltd.”, and, in the case of Exterran, in its Annual Report of Form 10-K for the year-ended December 31, 2021 and “Appendix E – Information Concerning Exterran Corporation”.

Risks Related to the Transaction

The Exchange Ratio is fixed and will not be adjusted in the event of any change in price of either Enerflex Common Shares or Exterran Common Stock.

At the Effective Time, each share of Exterran Common Stock that is outstanding immediately prior to the Effective Time (other than certain excluded shares as described in the Merger Agreement) will be converted into the right to receive 1.021 Enerflex Common Shares. Because the Exchange Ratio is fixed, the value of the Merger Consideration will depend on the market price of Enerflex Common Shares at the Effective Time. The market price of Enerflex Common Shares has fluctuated since the date of the announcement of the Transaction and is expected to continue to fluctuate from the date of this Management Information Circular until the Closing. Changes in the price of Enerflex Common Shares may result from a variety of factors, including, among others, general market and economic conditions, changes in Enerflex’s and Exterran’s respective businesses, operations and prospects, risks inherent in their respective businesses, changes in market assessments of the likelihood that the Transaction will be completed and/or the value that may be generated by the Transaction and changes with respect to expectations regarding the timing of the Transaction and regulatory considerations. Many of these factors are beyond Exterran’s and Enerflex’s control.

The Transaction is subject to various closing conditions, including regulatory and stockholder/shareholder approvals as well as other uncertainties, and there can be no assurances as to whether and when the Transaction may be completed.

Closing of the Transaction is subject to the satisfaction or waiver of a number of conditions specified in the Merger Agreement, and it is possible that such conditions if not satisfied or waived, as applicable, may prevent, delay or otherwise materially adversely affect the completion of the Transaction. These conditions include, among other things: (i) receipt of the Exterran Stockholder Approval; (ii) receipt of the Enerflex Shareholder Approval; (iii) effectiveness of the Form F-4 prepared in accordance with the provisions of the Securities Act and no stop order suspending the effectiveness of the Form F-4 having been issued and remaining in effect and no proceeding to that effect having been commenced; (iv) the absence of any injunction or similar order prohibiting or making illegal the consummation of the Transaction; (v) receipt of the Required Antitrust Approvals; (vi) the Enerflex Common Shares issuable in the Transaction having been approved for listing on the NYSE or NASDAQ, subject to official notice of issuance, and the TSX, subject to customary listing requirements; (vii) the accuracy of each party’s representations and warranties, subject to certain materiality standards set forth in the Merger Agreement; (viii) performance by each party in all material respects with such party’s obligations under the Merger Agreement; and (ix) with respect to Enerflex, the absence of an Exterran Material Adverse Effect, and with respect to Exterran, the absence of an Enerflex Material Adverse Effect (as such terms are defined in the Merger Agreement).

The Governmental Entities from which authorizations are required have broad discretion in administering the governing laws and regulations and may take into account various facts and circumstances in their consideration of the Transaction. In connection with the Transaction, these Governmental Entities also may impose requirements, limitations or costs, require divestitures or place restrictions on the conduct of Enerflex’s business after the merger of Enerflex and Exterran.

In order to complete the Transaction, Enerflex and Exterran must obtain certain Governmental Approvals, and if such Governmental Approvals are not granted or are granted with conditions that become applicable to the parties, completion of the Transaction may be delayed, jeopardized, or prevented and the anticipated benefits of the Transaction could be reduced.

No assurance can be given that the Governmental Approvals will be obtained or that the required conditions to the completion of the Transaction will be satisfied. Even if all such Governmental Approvals are obtained and such conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such Governmental Approvals. For example, these Governmental Approvals may impose conditions on or require divestitures relating to the divisions, operations or assets of Exterran and Enerflex or may impose requirements, limitations or costs or place restrictions on the conduct of Exterran’s or Enerflex’s business, and if such Governmental Approvals require an extended period of time to be obtained, such extended period of time could increase the chance that an adverse event occurs with respect to Exterran or Enerflex. Such extended period of time also may increase the chance that other adverse effects with respect to Exterran or Enerflex could occur, such as the loss of key personnel. Even if all necessary approvals are obtained, no assurance can be given as to the terms, conditions, and timing of such Governmental Approvals. For more information, see the sections entitled “Regulatory Approvals Required for the Transaction” and “The Merger Agreement – Regulatory Filings and Efforts; Other Actions.”

 

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We cannot provide any assurance that all Governmental Approvals will be obtained or that all conditions to Closing will otherwise be satisfied (or waived, if applicable) and, if all Governmental Approvals are obtained and all conditions to Closing are satisfied (or waived, if applicable), we cannot provide any assurance as to the terms, conditions and timing of such Governmental Approvals or the timing of the Closing. Many of the conditions to Closing are not within either Exterran’s or Enerflex’s control, and neither company can predict when or if these conditions will be satisfied (or waived, if applicable). Any delay in completing the Transaction could cause Exterran and/or Enerflex not to realize some or all of the benefits that each expects to achieve if the Transaction is successfully completed within the expected timeframe.

The Enerflex Special Meeting may take place before all of the Governmental Approvals have been obtained and before all conditions to such Governmental Approvals, if any, are known. Notwithstanding the foregoing, if the Share Issuance Resolution is approved by Enerflex Shareholders, Enerflex may not be required to seek further approval of Enerflex Shareholders.

After Enerflex’s combination with Exterran, Enerflex may fail to realize projected benefits and cost savings of the combination, which could adversely affect the value of Enerflex Common Shares.

Enerflex and Exterran have operated and, pending Closing, will continue to operate independently. The success of Enerflex’s combination with Exterran will depend, in part, on Enerflex’s ability to realize the anticipated benefits and synergies from reorganizing the Exterran corporate structure and combining the businesses of Exterran and Enerflex following Closing, including operational, tax and other synergies that Enerflex believes the combined company will achieve. The anticipated benefits and synergies of Enerflex’s combination with Exterran may not be realized fully or at all, may take longer to realize than expected or could have other adverse effects that we do not currently foresee. Some of the assumptions that we have made, such as the tax outcomes of the reorganization steps and achievement of operating synergies, may not be correct. The integration process may, for Exterran and Enerflex, result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could be potential unknown liabilities (including tax liabilities) and unforeseen expenses associated with the Transaction that were not discovered in the course of performing due diligence or that arise from the reorganization of the corporate structure or the combination of the businesses of Exterran and Enerflex post-Closing. Coordinating certain aspects of the operations and personnel of Enerflex with Exterran after the combination of Enerflex and Exterran will involve complex operational, technological and personnel-related challenges, which may be made more difficult in light of the COVID-19 pandemic. Additionally, the integration will require significant time and focus from management following the combination which may disrupt the business of the combined company.

The announcement and pendency of the Transaction could adversely affect each of Exterran’s and Enerflex’s business, results of operations and financial condition.

The announcement and pendency of the Transaction could cause disruptions in and create uncertainty surrounding Exterran’s and Enerflex’s business, including affecting Exterran’s and Enerflex’s relationships with its existing and future customers, suppliers, and employees, which could have an adverse effect on Exterran’s or Enerflex’s business, results of operations, and financial condition, regardless of whether the Transaction is completed. In particular, Exterran and Enerflex could potentially lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the Transaction. Exterran and Enerflex could also potentially lose customers or suppliers, and new customer or supplier contracts could be delayed or decreased. The attention of Exterran’s and Enerflex’s respective management may be directed towards Closing, including obtaining required Governmental Approvals, Required Antitrust Approvals, and other Transaction-related considerations and may be diverted from the day-to-day business operations of Exterran and Enerflex and matters related to the Transaction may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to Exterran and Enerflex. Additionally, the Merger Agreement requires each party to obtain the other party’s consent prior to taking certain specified actions while the Transaction is pending. These restrictions may prevent Enerflex and Exterran from pursuing otherwise attractive business opportunities prior to the Closing. Any of these matters could adversely affect the businesses of, or harm the results of operations, financial condition or cash flows of Enerflex and the market value of Enerflex Common Shares.

If the Transaction does not close, the market prices of Exterran Common Stock and Enerflex Common Shares may fall to the extent that the current prices of Exterran Common Stock and Enerflex Common Shares reflect a market assumption that the Transaction will close. In addition, the failure to close the Transaction may result in negative publicity or a negative impression of Exterran and Enerflex in the investment community and may affect Exterran’s and Enerflex’s relationship with employees, customers, suppliers, and other partners in the business community.

Exterran and Enerflex will incur substantial transaction fees and costs in connection with the Transaction.

Exterran and Enerflex have incurred and expect to incur additional material non-recurring expenses in connection with the Transaction, including costs relating to obtaining required Governmental Approvals and, in the case of Exterran, compensation payments to its executives triggered by the change in control of Exterran as a result of the Transaction. Exterran and Enerflex have incurred significant financial services, accounting, tax, and legal fees in connection with the process of negotiating and evaluating the terms of the Transaction. Additional significant unanticipated costs may be incurred in the course of coordinating and combining the businesses of Exterran and Enerflex. Even if the Transaction does not close, Exterran and Enerflex will need to pay certain costs relating to the Transaction incurred prior to the date the Transaction was abandoned, such as financial advisory, accounting,

 

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tax, legal, filing, and printing fees. Such costs may be significant and could have an adverse effect on the parties’ future results of operations, cash flows and financial condition. In addition to its own fees and expenses, if the Merger Agreement is terminated under specified circumstances as set out in the Merger Agreement, Exterran will be required to pay to Enerflex a U.S.$10.0 million termination payment. In addition to its own fees and expenses, if the Merger Agreement is terminated under specified circumstances as set out in the Merger Agreement, Enerflex may be required to pay either U.S.$20.0 million or U.S.$30.0 million termination payment to Exterran, less any amounts required to be withheld or deducted on account of taxes and depending on the reason for the termination. For a summary of the Merger Agreement, see the section entitled “The Merger Agreement – Termination or Abandonment of the Merger Agreement.”

Significant demands will be placed on Enerflex and Exterran as a result of the combination of the two companies.

As a result of the combination of Enerflex and Exterran, significant demands will be placed on the managerial, operational, and financial personnel and systems of Enerflex and Exterran. Enerflex and Exterran cannot assure that their respective systems, procedures and controls will be adequate to support the expansion of operations following and resulting from the combination of the two companies. The future operating results of the combined company will be affected by the ability of its officers and key employees to manage changing business conditions and to implement and expand its operational and financial controls and reporting systems in response to the Transaction.

The unaudited pro forma consolidated financial information of Exterran and Enerflex is presented for illustrative purposes only and may not be indicative of the results of operations or financial condition of the combined company following the combination of Enerflex and Exterran.

The unaudited pro forma consolidated financial information included in this Management Information Circular has been prepared using the consolidated historical financial statements of Enerflex and Exterran, and is presented for illustrative purposes only and should not be considered to be an indication of the results of operations or financial condition of the combined company after the combination of Enerflex and Exterran. In addition, the unaudited pro forma consolidated financial information included in this Management Information Circular is based in part on certain assumptions regarding the Transaction. These assumptions may not prove to be accurate, and other factors may affect the combined company’s results of operations or financial condition following the combination of Enerflex and Exterran. Accordingly, the historical information incorporated by reference in this Management Information Circular and unaudited pro forma consolidated financial information included in this Management Information Circular does not necessarily represent the combined company’s results of operations and financial condition had Exterran and Enerflex operated as a combined company during the periods presented, or of the combined company’s results of operations and financial condition after the combination of Enerflex and Exterran. The combined company’s potential for future business success and operating profitability must be considered in light of the risks, uncertainties, expenses, and difficulties typically encountered by recently combined companies.

In preparing the unaudited pro forma consolidated financial information contained in this Management Information Circular, Enerflex has given effect to, among other items, the combination of Enerflex and Exterran, the payment of the Merger Consideration and the indebtedness of Enerflex on a consolidated basis after giving effect to the combination of Enerflex and Exterran, including the indebtedness of Exterran. The unaudited pro forma consolidated financial information may not reflect all of the costs that are expected to be incurred by Exterran and Enerflex in connection with the Transaction. For more information, see the section entitled “Unaudited Pro Forma Consolidated Financial Information.”

The additional indebtedness that Enerflex will incur in connection with the Transaction could adversely affect Enerflex’s financial position, including by decreasing its business flexibility, ability to satisfy its debt obligations or achieve its desired credit rating.

Following Closing, the combined company will have increased borrowings compared to the borrowings of Enerflex prior to Closing. Enerflex’s consolidated borrowings were approximately $345,951,000 as at June 30, 2022. The combined company’s pro forma borrowings as at June 30, 2022, if the acquisition of Exterran had been completed on that same date, would have been approximately $1,268 million, and the entire amount of borrowings would have been at variable rates of interest when assuming borrowings for the Transaction are made under the bridge facility and credit facility.

Per the unaudited pro forma statement of financial position as at June 30, 2022, Enerflex expects to incur approximately $1,268 million of debt in connection with the Transaction, as a result of the Debt Financing and refinance the debt assumed in the Transaction as required, which represents an increase in long-term debt of $31 million. This increased level of borrowings could have the effect, among other things, of reducing Enerflex’s liquidity and the combined company’s flexibility to respond to changing business and economic conditions. Also, the combined company’s ability to make payments of principal and interest on its indebtedness will depend upon its future performance, which will be subject to general economic, financial and business conditions, sufficient cash flow, the implementation of the integration with Exterran and other factors affecting its operations, many of which will be beyond the combined company’s control.

Accordingly, the amount of cash required to service the combined company’s increased borrowing levels after the combination of Enerflex and Exterran, and thus the demands on the combined company’s cash resources, will be greater than the amount of cash flows required to service Enerflex’s borrowings prior to the combination. If Enerflex completes the Transaction and obtains control

 

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of Exterran but does not achieve the expected benefits and cost savings from the Transaction, or if the financial performance of the combined company does not meet current expectations, Enerflex’s ability to service its indebtedness may be adversely impacted. The increased levels of borrowings after the combination of Enerflex and Exterran could also reduce funds available for the combined company’s investments including capital expenditures and other activities and may create competitive disadvantages for the combined company relative to other companies with lower debt levels.

The agreements that will govern Enerflex’s indebtedness that would be incurred in connection with the Transaction may contain various affirmative and negative covenants that may, subject to certain customary exceptions, restrict the combined company’s ability to, among other things, create liens over its property, change its line of business and/or merge or consolidate with any other person or sell or convey certain of its assets to another person. In addition, some of the agreements that will govern the combined company’s new debt financings may contain financial covenants that will require it to maintain certain financial ratios. Various risks, uncertainties, and events beyond the combined company’s control could affect its ability to comply with these covenants and failure to comply with them could result in an event of default, which, if not cured or waived, could accelerate repayment obligations. Under these circumstances, the combined company may not have sufficient funds or other resources to satisfy all of its obligations.

In conjunction with the Transaction, Enerflex may issue debt securities that will be rated by various credit rating agencies which would assess each credit rating organization’s opinion of Enerflex’s financial and business strength, operating performance, and ability to meet Enerflex’s debt obligations. Some of these debt securities credit ratings may be publicly disclosed and could impact the cost and availability of future borrowings and, accordingly, Enerflex’s cost of capital. Enerflex’s credit ratings reflect each credit rating organization’s opinion of Enerflex’s financial and business strength, operating performance, and ability to meet Enerflex’s debt obligations. If any of Enerflex’s future credit ratings are less favourable than anticipated or reduced after coverage is initiated by each rating agency, Enerflex may not be able to sell additional debt securities, borrow money, refinance the Transaction facilities if drawn or establish alternatives to the Transaction facilities in the amounts, at the times or interest rates or upon the more favourable terms and conditions that might be available if Enerflex’s current credit ratings are maintained.

Enerflex or Exterran may waive one or more of the closing conditions without re-soliciting Enerflex Shareholder Approval or Exterran Stockholder Approval, respectively.

Certain conditions to Enerflex’s and Exterran’s obligations, respectively, to close the Transaction may be waived, in whole or in part, to the extent legally permissible, either unilaterally or by agreement of Enerflex and Exterran. In the event that any such waiver does not require re-solicitation of the Enerflex Shareholders or an amendment of this Management Information Circular or any re-solicitation of proxies or voting cards, as applicable, the parties will have the discretion to close the Transaction without seeking further approval of Enerflex Shareholders or Exterran Stockholders, as applicable.

The opinion of RBC rendered to the Enerflex Board does not reflect changes in circumstances between the signing of the Merger Agreement and the Closing.

RBC was retained by Enerflex to provide financial advisory services in connection with the Transaction. In connection with their mandate, at a meeting of the Enerflex Board held on January 23, 2022, RBC provided an oral opinion, which was subsequently confirmed in writing on January 23, 2022, that, as of the date thereof, and based upon and subject to the assumptions, limitations, qualifications, conditions, and other matters stated therein, the Merger Consideration to be paid to the holders of shares of Exterran Common Stock in the Transaction was fair, from a financial point of view, to Enerflex. The Enerflex Board has not obtained an updated opinion as of the date of this Management Information Circular. Changes in the operations and prospects of Enerflex or Exterran, general market and economic conditions, and other factors that may be beyond the control of Enerflex or Exterran, and on which the forecasts and assumptions used by RBC in connection with rendering of its opinion may have been based, may significantly alter the value of Enerflex or Exterran or the prices of the Enerflex Common Shares or of the shares of Exterran Common Stock by the time the Transaction is completed. The RBC Fairness Opinion did not speak as of the time the Transaction will be completed or as of any date other than the date of such opinion and the Enerflex Board does not anticipate asking its financial advisor to update its opinion.

For more information regarding the RBC Fairness Opinion, see the section entitled “The Transaction – RBC Fairness Opinion.” For the full text of the RBC Fairness Opinion, see “Appendix C – RBC Fairness Opinion.”

While the Transaction is pending, Enerflex is subject to business uncertainties and contractual restrictions that could materially adversely affect Enerflex’s operating results, financial position and/or cash flows or result in a loss of employees, suppliers, vendors or customers.

The Merger Agreement generally requires Enerflex to use commercially reasonable efforts to conduct its business in all material respects in the ordinary course prior to the earlier of the termination of the Merger Agreement and the Closing. In addition, the Merger Agreement includes a variety of specified restrictions on the conduct of Enerflex’s business, which, in the event the Merger Agreement is not earlier terminated, expire on the Closing Date. Among other things and subject to the other terms of the Merger Agreement and certain other exceptions and limitations, Enerflex may not, outside of the ordinary course of business, issue additional Enerflex Common Shares outside of its equity incentive plans, repurchase Enerflex Common Shares, pay dividends, acquire assets, securities or property, dispose of businesses or assets, enter into certain material contracts or make certain

 

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additional capital expenditures. Enerflex may find that these and other contractual restrictions in the Merger Agreement delay or prevent Enerflex from making certain changes, or limit its ability to make certain changes, during such period, even if Enerflex’s management believes that making certain changes may be advisable. The pendency of the Transaction may also divert management’s attention and Enerflex’s resources from ongoing business and operations.

Enerflex’s employees, suppliers, vendors or customers may experience uncertainties about the effects of the Transaction. It is possible that some employees, suppliers, vendors or customers, and other parties with whom Enerflex has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationship with Enerflex as a result of the Transaction. Similarly, current and prospective employees may experience uncertainty about their future roles with Enerflex following completion of the Transaction, which may materially and adversely affect Exterran’s ability to retain key employees. If any of these effects were to occur, it could materially and adversely impact Enerflex’s operating results, financial position, cash flows.

To consummate the Transaction and fund the operations of the combined company, Enerflex expects to (i) refinance its existing credit facility with a new committed credit facility, and (ii) replace existing credit obligations of Enerflex and Exterran through a new bridge loan or the issuance of new debt securities. The new committed credit facility and bridge loans contain certain conditions to close and the issuance of new debt securities is dependent on market conditions such that Enerflex cannot guarantee that it will be available at acceptable terms or available at all.

Enerflex anticipates that the funds needed to provide the working capital for the combined company will be derived from a combination of some or all of the: (i) cash on hand; (ii) borrowings under the newly committed credit facility which will be entered into for the purpose of the Transaction, its existing credit facilities and/or new credit facilities; and (iii) a committed bridge loan led by RBC Capital Markets and various other financial institutions or the proceeds from the sale of new debt securities in lieu of the bridge loan.

Enerflex may decide to replace the bridge loan with newly issued debt securities if they are available on better terms than the bridge loan. The availability of any newly issued debt securities will depend on, among other factors, prevailing market conditions, and other factors beyond Enerflex’s control. Enerflex cannot guarantee that these market conditions will be favourable and that the newly issued debt securities will be available on favourable terms or available at all.

The commitment of the new credit facility and bridge loan is described in the Debt Commitment Letter. However, Enerflex has not entered into definitive agreements for such debt financing, and the obligation of the lenders to provide the debt financing under the commitment letter is subject to a number of customary conditions. There can be no assurance that Enerflex will be able to obtain the Debt Financing under the Debt Commitment Letter. In the event that the Debt Financing contemplated above is not available, other financing may not be available on acceptable terms, in a timely manner or at all. If Enerflex is unable to obtain debt financing, the Transaction may be delayed or not be completed. Enerflex’s obligation to complete the Transaction is not conditioned upon the receipt of any financing.

Failure by Enerflex to successfully execute the combined company’s business strategy and objectives may materially adversely affect the future results of the combined company and, consequently, the market value of Enerflex Common Shares.

The success of the combination of Enerflex and Exterran will depend, in part, on the ability of Enerflex to successfully execute its business strategy. Furthermore, Enerflex’s business strategy, operations, and plans for growth rely significantly on agreements with third parties, including joint ventures and other strategic alliances. Enerflex’s ability to provide service to its customers depends in large part upon its ability to maintain these agreements with third parties, and upon the performance of the obligations under the agreements by the third parties. The termination of, or the failure to renew, these agreements could have a Material Adverse Effect on Enerflex’s consolidated financial statements and interfere with its business strategy, operations, and plans for growth. If Enerflex is not able to achieve the combined company’s business strategy, is not able to achieve such business strategy on a timely basis, or otherwise fails to perform in accordance with Enerflex’s expectations, the anticipated benefits of the combination of Enerflex and Exterran may not be realized fully or at all, and the combination may materially adversely affect the results of operations, financial condition, and prospects of the combined company and, consequently, the market value of Enerflex Common Shares.

Failure to complete the Transactions contemplated by the Merger Agreement could negatively impact the price of Enerflex’s Common Shares, and future business and financial results.

If the Transactions contemplated by the Merger Agreement are not completed for any reason, Enerflex’s ongoing business may be materially and adversely affected and Enerflex would be subject to a number of risks, including, but not limited to, the following:

 

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Enerflex may experience negative reactions from the financial markets, including negative impacts on trading prices of Enerflex Common Shares, and from Enerflex’s employees, suppliers, vendors, regulators or customers;

 

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Enerflex may be required to pay Exterran a termination payment of U.S.$20.0 million, less any amounts required to be withheld or deducted on account of taxes, in consideration for the disposition by Enerflex of its contractual rights under the Merger Agreement, if the Merger Agreement is terminated in certain circumstances, including because the Enerflex Board

 

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has changed its recommendation in support of the Transaction in response to an intervening event if the Enerflex Board determines that the failure to take such action would likely be inconsistent with its fiduciary duties, or in certain circumstances where, after the date of the Merger Agreement, Enerflex enters into a definitive agreement related to an Enerflex Superior Proposal;

 

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Enerflex may be required to pay Exterran a termination payment of U.S.$30.0 million, less any amounts required to be withheld or deducted on account of taxes, if Enerflex fails to secure all, or any portion of, the Debt Financing to be funded at Closing for any reason;

 

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the Merger Agreement places certain restrictions on the conduct of Enerflex’s business, and such restrictions, the waiver of which is subject to the consent of Exterran, may prevent Enerflex from making certain material acquisitions, entering into or amending certain contracts, taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the Transaction or, with respect to certain actions, prior to the Closing, that Enerflex would have made, taken or pursued if these restrictions were not in place; and

 

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matters relating to the Transaction (including integration planning) will require substantial commitments of time and resources by Enerflex’s management and the expenditure of significant funds in the form of fees and expenses, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to Enerflex as an independent company.

In addition, Enerflex could be subject to litigation related to any failure to complete the Transaction or related to any proceeding to specifically enforce Enerflex’s performance obligations under the Merger Agreement.

If any of these risks materialize, they may materially and adversely affect Exterran’s business, financial condition, financial results and stock price.

Directors, officers and employees of Enerflex may have interests in the Transaction that may differ from those of Enerflex Shareholders generally.

In considering the recommendation of the Enerflex Board to vote in favour of the Share Issuance Resolution, Enerflex Shareholders should be aware that certain directors, officers and employees of Enerflex may have interests in the Transaction that are different from, or in addition to, the interests of Enerflex Shareholders generally including, but not limited to, those interests discussed under the heading “Interests of Certain Persons or Companies in the Transaction”.

Except in specified circumstances, if the Effective Time has not occurred by the End Date, either Exterran or Enerflex may choose not to proceed with the Transaction.

Either Exterran or Enerflex may terminate the Merger Agreement if the Effective Time has not occurred by the End Date. However, this right to terminate the Merger Agreement will not be available to Exterran or Enerflex if such party has breached in any material respect its obligations under the Merger Agreement in any manner that has been the primary cause of the failure to consummate the Transaction on or before the End Date. For more information, see the section entitled “The Merger Agreement – Termination or Abandonment of the Merger Agreement.”

Enerflex may lose its status as a “foreign private issuer” in the U.S. following the Closing or upon the completion of the combination of Enerflex and Exterran, which could result in additional costs and expenses.

There is a possibility that as a result of the Transaction, after the Closing, Enerflex may no longer qualify as a foreign private issuer under applicable U.S. securities laws.

For so long as Enerflex remains a foreign private issuer under the Exchange Act, Enerflex is exempt from certain rules under the Exchange Act. Enerflex is not currently required to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the SEC. Enerflex is also not required to file periodic reports and financial statements with the SEC as frequently or as promptly as companies whose securities are registered under the Exchange Act but are not foreign private issuers, or to comply with Regulation FD, which restricts the selective disclosure of material non-public information. In addition, Enerflex is exempt from certain disclosure and procedural requirements applicable to proxy solicitations under section 14 of the Exchange Act. The members of the Enerflex Board, officers, and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of section 16 of the Exchange Act.

If Enerflex determines that it no longer qualifies as a foreign private issuer at any time following the Closing of the Transaction, it will be required to satisfy its reporting obligations using U.S. domestic reporting forms and will become subject to the rules applicable to a U.S. domestic issuer. If Enerflex loses its foreign private issuer status, it will also lose its ability to use the Multi-jurisdictional Disclosure System and rely on Canadian disclosure documents when offering securities in the U.S. Subject to certain exemptions that may be available, Enerflex will also continue to be required to comply with its reporting obligations under Canadian securities laws. In addition, Enerflex may lose the ability to rely upon certain corporate governance exemptions from the NYSE that are available to foreign private issuers. Finally, if Enerflex loses its foreign private issuer status, to the extent that Enerflex were to offer or sell its securities outside of the U.S., it would have to comply with the generally more restrictive Regulation S requirements that apply to U.S. companies, which could limit Enerflex’s ability to access capital markets in the future, and create a higher

 

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likelihood that investors could require Enerflex to file resale registration statements with the SEC as a condition of any such financings. As a result, the regulatory, compliance, and financing costs to Enerflex under U.S. securities laws as a U.S. domestic issuer may be higher than those of a Canadian foreign private issuer.

Resales of Enerflex Common Shares following the Transaction may cause the market value of Enerflex Common Shares to decline.

Based on the number of Enerflex Common Shares and shares of Exterran Common Stock (including shares to be issued pursuant to Exterran Phantom Units) outstanding as of September 8, 2022, Enerflex expects to issue up to approximately 34,013,055 Enerflex Common Shares to Exterran Stockholders at the Effective Time representing approximately 27.5% of the issued and outstanding Enerflex Common Shares on a non-diluted basis after giving effect to the Transaction. The issuance of these new Enerflex Common Shares could have the effect of depressing the market value for Enerflex Common Shares. The increase in the number of Enerflex Common Shares may lead to sales of such Enerflex Common Shares or the perception that such sales may occur, either of which may adversely affect the market for, and the market value of, Enerflex Common Shares.

The market value of Enerflex Common Shares may decline as a result of the combination of Enerflex and Exterran.

The market value of Enerflex Common Shares may decline as a result of the combination of Enerflex and Exterran if, among other things, the combined company is unable to achieve the expected growth in revenues and earnings, or if the operational cost savings estimates in connection with the integration of Exterran’s and Enerflex’s businesses are not realized or if the costs related to the Transaction are greater than expected. The market value of Enerflex Common Shares also may decline if the combined company does not achieve the perceived benefits of the combination as rapidly or to the extent anticipated by the market or if the effect of the combination on the combined company’s financial position, results of operations or cash flows is not consistent with the expectations of financial or industry analysts. In addition, some Exterran Stockholders may decide not to continue to hold the Enerflex Common Shares they receive as a result of the Transaction, and any such sales of Enerflex Common Shares could have the effect of depressing their market price. Moreover, general fluctuations in stock markets could have a Material Adverse Effect on the market for, or liquidity of, Enerflex Common Shares, regardless of Enerflex’s actual operating performance after the combination of Enerflex and Exterran.

Current Enerflex Shareholders and Exterran Stockholders will have a reduced ownership and voting interest after the Transaction and will have less input into the management of the combined company.

Based on the number of Enerflex Common Shares and shares of Exterran Common Stock (including shares to be issued pursuant to Exterran Phantom Units) outstanding on September 8, 2022, Enerflex expects to issue up to approximately 34,013,055 Enerflex Common Shares to Exterran Stockholders at the Effective Time representing approximately 27.5% of the issued and outstanding Enerflex Common Shares on a non-diluted basis after giving effect to the Transaction. As a result, it is expected that, immediately after the Effective Time, former Exterran Stockholders will own approximately an aggregate of 26.8% of the total issued and outstanding Enerflex Common Shares on a fully diluted basis. See the section of this Management Information Circular entitled “The Merger Agreement—Treatment of Exterran Equity Awards.” Consequently, current Enerflex Shareholders in the aggregate will have less input into the management and policies of the combined company than they currently have over the management and policies of Enerflex, and Exterran Stockholders in the aggregate will have significantly less input into the management and policies of the combined company than they currently have over the management and policies of Exterran.

Exterran and Enerflex may be targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Transaction from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Transaction, then that injunction may delay or prevent the Transaction from being completed. See “Lawsuits arising out of or relating to the Merger Agreement or the Transaction may have an adverse effect on the combined company if a resolution is not reached prior to Closing” under the heading “Risk Factors” in “Appendix G – Information Concerning the Combined Company”.

The combined company may be exposed to increased activism and litigation, which could have an adverse effect on the combined company’s business and operations.

The combined company may be exposed to increased shareholder and stockholder activism and litigation from shareholders and stockholders, customers, suppliers, consumers and other third parties due to the combination of Enerflex’s business and Exterran’s business. Such litigation may have an adverse impact on the combined company’s business and results of operations or may cause disruptions to the combined company’s operations.

The Internal Revenue Service (“IRS”) may not agree that Enerflex should be treated as a foreign corporation for U.S. federal income tax purposes.

Under current U.S. federal income tax law, a corporation generally will be considered to be a U.S. corporation for U.S. federal income tax purposes only if it is created or organized under the law of the U.S., any state thereof or the District of Columbia.

 

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Accordingly, under generally applicable U.S. federal income tax rules, Enerflex, which is organized under the CBCA, would generally be classified as a non-U.S. corporation. However, section 7874 of the Code and the Treasury Regulations promulgated thereunder contain specific rules that may cause a non-U.S. corporation to be treated as a U.S. corporation for U.S. federal income tax purposes (or to be subject to certain other adverse tax consequences). Based on the percentage of outstanding Enerflex Common Shares that is expected to be owned by former holders of Exterran Common Stock immediately after the Transaction, Enerflex believes that it should not be treated as a U.S. corporation for U.S. federal income tax purposes under section 7874 of the Code immediately following the Transaction. There can be no assurance, however, that the IRS will not take a contrary position or that the relevant U.S. federal income tax law will not be changed (possibly with retroactive effect) in a manner that would result in a contrary conclusion. If it were determined that Enerflex is treated as a U.S. corporation for U.S. federal income tax purposes under section 7874 of the Code and the Treasury Regulations promulgated thereunder, Enerflex could be subject to substantial U.S. tax liability and its non-U.S. shareholders could be subject to U.S. withholding tax on any dividends.

The Merger Agreement contains provisions that make it more difficult for Enerflex and Exterran to pursue alternatives to the Transaction.

The Merger Agreement contains provisions that make it more difficult for Enerflex to sell its business, or for Exterran to sell its business to a party other than Enerflex. These provisions include a general prohibition on each party soliciting any Alternative Proposal. Further, there are only limited circumstances in which Exterran may terminate the Merger Agreement to accept an Alternative Proposal and limited exceptions to each party’s agreement that its board of directors will not withdraw or modify in a manner adverse to the other party the recommendation of its board of directors in favour of the adoption of the Merger Agreement. In the event that the Exterran Board makes an adverse recommendation change, then Exterran may be required to pay to Enerflex a termination payment of U.S.$10.0 million. In the event that the Enerflex Board makes an adverse recommendation change, then Enerflex may be required to pay to Exterran a termination payment of U.S.$20.0 million less any amounts required to be withheld or deducted on account of taxes. See the section entitled “The Merger Agreement – No Solicitation” and “The Merger Agreement – Termination or Abandonment of the Merger Agreement.”

The parties believe these provisions are reasonable and not preclusive of other offers, but these restrictions might discourage a third party that has an interest in acquiring all or a significant part of either Exterran or Enerflex from considering or proposing an Alternative Proposal.

If an Alternative Proposal to acquire Exterran is made, consummation of the Transaction may be delayed or impeded.

If an Alternative Proposal to acquire Exterran is made, the attention of Exterran’s and Enerflex’s respective management may be diverted away from the Transaction, which may delay or impede consummation of the Transaction. Matters related to such Alternative Proposal, including any potential related litigation, may require commitments of time and resources of both parties and their respective representatives, which could otherwise have been devoted to the Transaction.

Exchange rate fluctuations may adversely affect the foreign currency value of Enerflex Common Shares and any dividends.

The Enerflex Common Shares are quoted in Canadian dollars on the TSX. After the Closing, Enerflex expects that the Enerflex Common Shares will, in addition to continuing to be quoted on the TSX in Canadian dollars, be quoted in U.S. dollars on the NYSE. Dividends in respect of Enerflex Common Shares, if any, are anticipated to be declared in Canadian dollars, consistent with Enerflex’s current dividend practice. Enerflex’s financial statements are prepared in Canadian dollars. Fluctuations in the exchange rate between the U.S. dollar and Canadian dollar will affect, among other matters, the U.S. dollar value of Enerflex Common Shares, whether or not traded on the TSX or the NYSE, and of any dividends in respect of such shares.

Enerflex may not have discovered undisclosed liabilities of Exterran, if any.

In the course of the due diligence review of Exterran that Enerflex conducted prior to the execution of the Merger Agreement, Enerflex may not have discovered, or may have been unable to quantify, undisclosed liabilities of Exterran and its Subsidiaries, if any, and Enerflex will not be indemnified for any of these liabilities. If Exterran has undisclosed liabilities, Enerflex, as a successor owner, may be responsible for such undisclosed liabilities. Such undisclosed liabilities could have an adverse effect on the business, results of operations, financial condition and cash flows of Enerflex and on the value of the Enerflex Common Shares after the closing of the Transaction. For more information, see the section entitled “The Merger Agreement – Termination or Abandonment of the Merger Agreement”.

Risks Related to Enerflex’s Business

Enerflex Shareholders should read and consider the risk factors specific to Enerflex’s business that will also affect the combined company after the completion of the Transaction. These risks are described the Enerflex Annual Report under the heading “Risk Factors” and the Enerflex AIF under the heading “Risk Factors”, and in other documents that are incorporated by reference in this Management Information Circular. See the section entitled “Information Contained in Management Information Circular – Information Incorporated by Reference” for the location of information incorporated by reference in this Management Information Circular and “Appendix F – Information Concerning Enerflex Ltd.”.

 

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Risks Related to Exterran’s Business

Enerflex Shareholders should read and consider the risk factors specific to Exterran’s business that will also affect the combined company after the completion of the Transaction. These risks are described in Exterran’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which are incorporated by reference in this Management Information Circular, and in other documents that are incorporated by reference in this Management Information Circular. See the section entitled “Information Contained in Management Information Circular – Information Incorporated by Reference” for the location of information incorporated by reference in this Management Information Circular and “Appendix E – Information Concerning Exterran Corporation”.

INFORMATION ABOUT ENERFLEX, MERGER SUB, EXTERRAN, AND THE COMBINED COMPANY

Enerflex Ltd.

Suite 904, 1331 Macleod Trail S.E.

Calgary, Alberta, Canada, T2G 0K3

403.387.6377

Enerflex is a single-source supplier of natural gas compression, oil and gas processing, refrigeration systems, energy transition solutions, and electric power generation equipment – plus related in-house engineering and mechanical services expertise. Enerflex’s broad in-house resources provide the capability to engineer, design, manufacture, construct, commission, service, and operate hydrocarbon and other gas handling systems. Enerflex’s expertise encompasses field production facilities, compression and natural gas processing plants, gas lift compression, refrigeration systems, energy transition solutions, and electric power solutions serving the natural gas production industry.

Headquartered in Calgary, Alberta, Canada, Enerflex has approximately 2,100 employees worldwide. Enerflex, its Subsidiaries, interests in associates, and joint operations operate in Canada, the U.S., Argentina, Bolivia, Brazil, Colombia, Mexico, the United Kingdom, Bahrain, Kuwait, Oman, the United Arab Emirates, Australia, New Zealand, Indonesia, Malaysia, and Thailand. Through Enerflex’s owned natural gas infrastructure, Enerflex transforms over 3.1 billion cubic feet of natural gas per day, globally.

Enerflex has fabrication and workshop facilities in Calgary, Alberta; Houston, Texas; and Brisbane, Queensland, that supply custom fabricated and standard equipment to customers worldwide. Enerflex is one of the leading suppliers of natural gas compression within the rental market in Canada, the U.S., Latin America, and the Middle East, with a global rental fleet of approximately 800,000 horsepower. Enerflex is a highly-qualified service provider with industry-certified mechanics and technicians strategically situated across a network of 53 service locations in Canada, the U.S., Latin America, the Middle East, and Asia Pacific.

Enerflex’s revenue is derived from the sale of natural gas-related products and services, including: engineering, design, and fabrication of hydrocarbon production and processing facilities, natural gas compression equipment, energy transition solutions, and electric power facilities; rental of natural gas compression, processing, and electric power equipment; after-market service, operations and maintenance, and parts distribution, for compression, process, refrigeration, and power generation equipment, as well as retrofit solutions for compression and power generation equipment; and concept-to-commissioning of integrated turnkey systems and BOOM solutions for natural gas compression, processing, and power generation.

Through Enerflex’s ability to provide these products and services in an integrated manner, or as stand-alone offerings, Enerflex offers customers a unique value proposition well suited to address their changing needs.

Enerflex was formed on June 1, 2011 pursuant to a plan of arrangement under section 192 of the CBCA among Toromont Industries Ltd., its shareholders, Enerflex Ltd. and 77877014 Canada Inc. Enerflex’s registered, executive and corporate head office is located at Suite 904, 1331 Macleod Trail S.E., Calgary, Alberta, Canada, T2G 0K3. Enerflex common shares are listed on the TSX under the symbol “EFX”.

Additional information about Enerflex can be found on its website at www.enerflex.com and under Enerflex’s electronic profile on SEDAR’s website. For additional information about Enerflex, see “Information Incorporated by Reference” and “Appendix F – Information Concerning Enerflex Ltd.”.

Enerflex US Holdings Inc.

10815 Telge Road

Houston, Texas USA 77095

281.345.9300

Merger Sub, a Delaware corporation and a direct wholly-owned Subsidiary of Enerflex, was formed solely for the purpose of facilitating the Transaction. Merger Sub has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the Transaction. By operation of the Merger, Merger Sub will merge with and into Exterran.

 

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As a result, immediately following the merger, Exterran will survive as a direct wholly-owned Subsidiary of Enerflex.

Merger Sub’s principal executive offices are located at 10815 Telge Road, Houston, TX USA 77095, and its telephone number is 281.345.9300.

Exterran Corporation

Exterran is a global systems and process company offering solutions in the oil, gas, water and power markets. Exterran is a leader in natural gas processing and treatment and compression products and services, providing critical midstream infrastructure solutions to customers throughout the world. Exterran is headquartered in Houston, Texas and operates in approximately 25 countries.

Exterran Common Stock is traded on the NYSE under the symbol “EXTN”. Exterran’s principal executive offices are located at 11000 Equity Drive, Houston, TX, 77041, and its telephone number is 281.836.7000.

Additional information about Exterran can be found on its website at www.exterran.com. The information contained in, or that can be accessed through, Exterran’s website is not intended to be incorporated by reference in this Management Information Circular. For additional information about Exterran, see “Information Incorporated by Reference” and “Appendix E – Information Concerning Exterran Corporation”.

Information Concerning the Combined Company

The combined company will carry on the combined businesses of Enerflex and Exterran, with Exterran as a direct wholly-owned Subsidiary of Enerflex.

Enerflex will continue to be governed by the CBCA, while the Surviving Corporation will be governed by the DGCL. Calgary, Alberta, Canada will be the global headquarters of the combined company. For additional information about the combined company, see “Information Incorporated by Reference” and “Appendix G – Information Concerning the Combined Company”.

THE TRANSACTION

This section of this Management Information Circular describes the various aspects of the Transaction and related matters. This section may not contain all of the information that is important to you. You should carefully read this entire Management Information Circular and the documents incorporated by reference in this Management Information Circular, including the full text of the Merger Agreement, a copy of which is attached to this Management Information Circular as “Appendix B – Merger Agreement”, for a more complete understanding of the Transaction. In addition, important business and financial information about each of Enerflex and Exterran is included in or incorporated by reference in this Management Information Circular. For a list of the documents incorporated by reference in this Management Information Circular, see the section entitled “Information Contained in Management Information Circular – Information Incorporated by Reference”.

Transaction Structure

Under the Merger Agreement, dated as of January 24, 2022, among Enerflex, Merger Sub, a direct wholly-owned Subsidiary of Enerflex, and Exterran, Merger Sub will merge with and into Exterran, with the Surviving Corporation becoming a direct wholly-owned Subsidiary of Enerflex pursuant to and in accordance with the laws of the State of Delaware. The Merger Agreement was, at all times, negotiated at arm’s length. Under the Transaction, each share of Exterran Common Stock (other than certain excluded shares as described in the Merger Agreement), will be converted into the right to receive 1.021 Enerflex Common Shares.

The Merger Agreement provides, among other things, that, upon the terms and subject to the satisfaction or waiver of the conditions set forth therein, at the Effective Time, Merger Sub shall be merged with and into Exterran and Exterran shall be the Surviving Corporation in the Transaction, and, following the Transaction, shall be a direct wholly-owned Subsidiary of Enerflex.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, each share of Exterran Common Stock that is outstanding immediately prior to the Effective Time (other than certain excluded shares as described in the Merger Agreement) will be converted automatically into the right to receive the Merger Consideration, being 1.021 validly issued, fully paid and non-assessable Enerflex Common Shares. The Exchange Ratio is fixed and will not be adjusted for fluctuations in the market price of Enerflex Common Shares or shares of Exterran Common Stock between the date of the Merger Agreement and the Closing.

The terms and conditions of the Transaction are contained in the Merger Agreement, which is described in this Management Information Circular and attached to this Management Information Circular as “Appendix B – Merger Agreement”. You are encouraged to read the Merger Agreement carefully, as it is the legal document that governs the Transaction. All descriptions in this summary and elsewhere in this Management Information Circular of the terms and conditions of the Transaction are qualified in their entirety by reference to the full text of the Merger Agreement.

 

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Merger Consideration

Under the Merger Agreement, at the Effective Time, each share of Exterran Common Stock that is outstanding immediately prior to the Effective Time (other than certain excluded shares as described in the Merger Agreement) will be converted automatically into the right to receive the Merger Consideration, being 1.021 validly issued, fully paid and non-assessable Enerflex Common Shares. As part of the Merger Consideration, each holder of Exterran Common Stock who would otherwise have been entitled to receive as a result of the Transaction a fraction of an Enerflex Common Share will receive, in lieu of such fractional Enerflex Common Share, cash in an amount representing such holder’s proportionate interest in the net proceeds from the sale by the Exchange Agent, on behalf of all such holders, of the aggregated number of fractional Enerflex Common Shares that would have otherwise been issuable to such holders. Any cash amounts to be received by holders of shares of Exterran Common Stock in lieu of any fractional Enerflex Common Shares will be rounded to the nearest cent. The Exchange Ratio is fixed and will not be adjusted for fluctuations in the market price of Enerflex Common Shares or shares of Exterran Common Stock between the date of the Merger Agreement and the Closing.

The Merger Consideration will be equitably adjusted in the event of any stock dividend, subdivision, reorganization, reclassification, recapitalization, stock split, reverse stock split, combination or exchange of shares involving Exterran Common Stock or Enerflex Common Shares prior to the Effective Time, to proportionally reflect such change.

Based on the number of Enerflex Common Shares and shares of Exterran Common Stock (including shares to be issued pursuant to Exterran Phantom Units) outstanding on September 8, 2022, Enerflex expects to issue up to approximately 34,013,055 Enerflex Common Shares to Exterran Stockholders at the Effective Time representing approximately 27.5% of the issued and outstanding Enerflex Common Shares on a non-diluted basis after giving effect to the Transaction. The actual number of Enerflex Common Shares to be issued under the Merger Agreement will be determined immediately prior to the Effective Time based on the Exchange Ratio and the number of shares of Exterran Common Stock and Enerflex Common Shares outstanding. Immediately after the Transaction, former Exterran Stockholders are expected to own approximately 26.8% of the total issued and outstanding Enerflex Common Shares on a fully diluted basis.

Based on the closing price of Enerflex Common Shares on the TSX of $7.90 on January 21, 2022, the last full trading day prior to the date of the Merger Agreement, the implied value of the Merger Consideration to holders of shares of Exterran Common Stock was approximately $8.066 per share of Exterran Common Stock. On September 8, 2022, the date of this Management Information Circular, the closing price of Enerflex Common Shares on the TSX was $6.56 per share, resulting in an implied value of the Merger Consideration to holders of shares of Exterran Common Stock of $6.6978 per share of Exterran Common Stock.

The implied value of the Merger Consideration will fluctuate, as the market price of Enerflex Common Shares fluctuates, because the Merger Consideration that is payable per share of Exterran Common Stock is a fixed fraction of an Enerflex Common Share. As a result, the value of the Merger Consideration that Exterran Stockholders will receive upon the Closing could be greater than, less than, or the same as the value of the Merger Consideration as at the date of this Management Information Circular or at the time of the Enerflex Special Meeting. Enerflex Common Shares trade on the TSX under the symbol “EFX” and Exterran Common Stock trades on the NYSE under the symbol “EXTN”.

For a full description of the treatment of Exterran Equity Awards in the Transaction, see the sections entitled “The Merger Agreement – Merger Consideration” and “The Merger Agreement – Treatment of Exterran Equity Awards”.

Background of the Transaction

Events Preceding the Execution of the Merger Agreement

Each of the Exterran Board and Exterran management and the Enerflex Board and Enerflex management regularly reviews and assesses each respective company’s independent strategic plans, and corporate policies and direction, and considers various strategic alternatives potentially available, all with the goal of enhancing value for their respective shareholders. In connection with these activities, each of Andrew J. Way, Exterran’s President and Chief Executive Officer, and Marc E. Rossiter, Enerflex’s President and Chief Executive Officer, regularly assess the industry’s competitive landscape and periodically engage in discussions with the chief executive officers of other companies regarding potential acquisitions, divestitures, or strategic opportunities that may be available to Exterran or Enerflex aimed at increasing the competitiveness, scale, financial flexibility, and growth platform of either company, and each of Messrs. Way and Rossiter reports these discussions to their respective boards. Enerflex first engaged in conversations with Exterran’s predecessor, Exterran Holdings, Inc., regarding a possible transaction in 2013. The discussions were preliminary in nature. Upon review of the information provided, Enerflex made the decision not to continue further discussions at that time and formal engagement between the parties ceased as of December 4, 2013.

In the second half of 2019, the Exterran Board and Exterran management began implementation of its ongoing strategic transformation plan whereby Exterran would be transformed over the course of its 2020 through 2022 fiscal years from an oilfield service company into an energy industrial services company that offered sustainable solutions to its customers and generated significant cash flow in 2023 and beyond. Following commencement of the ongoing strategic transformation plan, the Exterran Board regularly met with Exterran management in the ordinary course to review and discuss the execution of the plan, including the

 

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capital requirements and timeline required to execute on the plan. During 2020 and 2021, Exterran continued to execute on this strategic plan by focusing on higher margin product lines, divesting its U.S. compression fabrication business, and accelerating the development and growth of its water treatment business and technology, among other matters.

In August and December 2020, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities, Exterran’s financial advisor. Representatives of Wells Fargo Securities were invited to participate in these meetings due to their prior and ongoing experience in advising Exterran on strategic and other financial advisory matters, and the belief of the Exterran Board that Wells Fargo Securities had extensive experience advising companies in the energy industry, as well as significant experience providing strategic and financial advisory services.

At these meetings, the Exterran Board discussed with representatives of Wells Fargo Securities and Exterran management the ongoing execution of Exterran’s strategic transformation plan, the potential benefits and risks associated with the plan, and strategic alternatives that Exterran could pursue. These strategic alternatives included continuing to execute on the strategic transformation plan and operating as a standalone business, pursuing joint ventures, diversifying Exterran’s business through acquisitions, or pursuing a sale of Exterran for cash or stock to a potential strategic or financial acquiror. The Exterran Board also discussed with Exterran management and representatives of Wells Fargo Securities the potential re-financing of Exterran’s existing indebtedness as well as debt and/or equity capital that may be necessary in connection with the execution of the strategic transformation plan.

After each of the meetings, the Exterran Board unanimously determined that continuing to execute on the strategic transformation plan and operating as a standalone business was most likely to maximize value for the Exterran Stockholders. The Exterran Board also authorized Exterran management and its advisors to continue to pursue and evaluate the potential re-financing of Exterran’s existing indebtedness as well as debt and / or equity capital that may be necessary in connection with the execution of the strategic transformation plan.

In late 2020, during its regular evaluation of potential acquisitions, divestitures, or strategic opportunities in the industry, Enerflex management identified Exterran as a potentially attractive combination for Enerflex. At a board meeting of Enerflex on February 8, 2021, Enerflex’s management discussed with the Enerflex Board the possibility of investigating a potential strategic transaction with Exterran. The Enerflex Board supported management to engage legal and financial advisors regarding such a transaction and Enerflex’s management to develop a plan and to reach out to Exterran.

Effective February 16, 2021, Enerflex and RBC entered into an engagement letter for RBC to provide financial advisory services in connection with a potential transaction involving Exterran. On or about the same time, Enerflex engaged Norton Rose Fulbright as its legal advisor to understand and identify potential legal matters that may arise in connection with a transaction between Enerflex and Exterran. On February 24, 2021, Enerflex’s management provided the Enerflex Board with an update on the status of its evaluation of a potential transaction with Exterran and the Enerflex Board ratified management’s engagement of RBC and Norton Rose Fulbright as Enerflex’s financial and legal advisors, respectively.

On March 11, 2021, Enerflex’s management presented the Enerflex Board with an updated analysis of a potential transaction based on publicly available information on Exterran, including anticipated critical due diligence items.

On March 15, 2021, Mr. Rossiter contacted Mr. Way and informed him that Enerflex was interested in exploring a potential strategic transaction in which Enerflex would acquire Exterran. Mr. Rossiter did not propose any purchase price or other transaction terms during this discussion. As a next step, Mr. Rossiter proposed an in-person meeting with Mr. Way on March 17, 2021, to further discuss the rationale for a potential strategic transaction.

On March 17, 2021, Messrs. Rossiter and Way met in Houston, Texas. During the meeting, Mr. Rossiter provided Mr. Way with his views as to why a potential strategic transaction between Enerflex and Exterran could create a premier integrated provider of energy infrastructure. Mr. Rossiter did not propose any purchase price or other transaction terms during this discussion. Mr. Way informed Mr. Rossiter that Exterran was focused on executing its strategy as an independent, standalone company, but that the Exterran Board is and has always been willing to consider strategic alternatives that may enhance shareholder value. After discussion, Mr. Rossiter requested that Mr. Way and Mark R. Sotir, the Executive Chairman of the Exterran Board, meet with him and Robert S. Boswell, one of Enerflex’s directors, in-person in Chicago, Illinois later that month to further discuss a potential strategic transaction.

On March 22, 2021, Enerflex’s management updated the Enerflex Board on Mr. Rossiter’s recent discussions with Mr. Way and considered the opportunity for a second meeting to take place.

On March 24, 2021, Messrs. Rossiter, Way, Sotir and Boswell met in Chicago, Illinois. At the meeting, Mr. Rossiter again expressed Enerflex’s interest in exploring a potential strategic transaction in which Enerflex would acquire Exterran. Messrs. Rossiter and Boswell discussed the general framework of a transaction, including the complementary nature of the businesses and the cultural fit between Exterran and Enerflex. Messrs. Rossiter and Boswell did not propose any purchase price or other transaction terms during this discussion. At the conclusion of this meeting, Mr. Way and Mr. Sotir communicated that the Exterran Board was focused on pursuing its standalone business plan to create value for Exterran Stockholders and they did not believe the Exterran Board would be interested in holding further discussions at this time.

 

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Between March 24, 2021, and April 12, 2021, Messrs. Way and Sotir discussed Enerflex’s proposal with other members of the Exterran Board on multiple telephone calls. After discussion, the Exterran Board determined that, while a potential strategic transaction between Enerflex and Exterran could possibly generate significant value for Exterran’s shareholders, Exterran should continue to focus on executing its strategy as an independent, standalone company, including through the execution of its strategic transformation plan. In this regard, the Exterran Board noted that, among other matters, Enerflex had not proposed any purchase price or other transaction terms, and Exterran’s management should continue to devote its full attention to the execution of Exterran’s strategic transformation plan, as opposed to engaging in preliminary and exploratory discussions regarding a potential strategic transaction.

On April 13, 2021, Mr. Way contacted Mr. Rossiter to confirm that Exterran was not interested in holding further discussions regarding a potential strategic transaction at this time.

On April 28, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding, Exterran’s legal advisor. At the meeting, Exterran management provided the Exterran Board with an update on Exterran’s commercial and financial performance as well as the execution of the strategic transformation plan. Also at this meeting, Exterran management discussed with the Exterran Board the perspectives of certain Exterran Stockholders regarding Exterran’s strategic transformation plan and the capital required to execute the plan, which perspectives were communicated to Exterran management as part of their engagement with Exterran Stockholders. As part of this discussion, Exterran management noted that, as part of its routine engagement with Exterran Stockholders, several of these stockholders provided Exterran with feedback based on publicly available information that emphasized Exterran’s need to identify long-term sources of equity and / or debt capital that could be used to fund Exterran’s strategic transformation plan, and that Exterran should publicly disclose its financing plans in the near term. Exterran management also noted that certain of these stockholders proposed that Exterran pursue a “rights offering” in which Exterran would issue equity in a transaction that would result in significant dilution to Exterran Stockholders that did not purchase equity in the offering.

Also during this meeting, Exterran management again discussed with the Exterran Board the potential re-financing of Exterran’s existing indebtedness as well as debt and / or equity capital that may be necessary in connection with the execution of the strategic transformation plan, and the steps Exterran was taking in furtherance of this plan. After discussion, the Exterran Board determined that it would be prudent to again discuss at a future board meeting the ongoing execution of Exterran’s strategic transformation plan, the potential benefits and risks associated with the plan, and strategic alternatives that Exterran could pursue.

On May 4, 2021, Exterran reported its results of operation for the first quarter of its 2021 fiscal year. During the earnings call, David Barta, Exterran’s Senior Vice President and Chief Financial Officer, stated that Exterran had commenced a review of its capital structure strategy to ensure both near and long-term success.

On May 5, 2021, Enerflex’s management provided the Enerflex Board with an update, including the recent equity market developments relevant to Exterran and a combination risk analysis. Enerflex’s management noted that Exterran had previously indicated that it was not interested in pursuing a transaction. Based on the status of discussions between the parties at this time, the Enerflex Board determined not to actively pursue a transaction with Exterran.

On June 9 and June 25, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. At the meeting, the Exterran Board discussed with Exterran management and representatives of Wells Fargo Securities the strategic alternatives that Exterran could pursue. These strategic alternatives included continuing to execute on the strategic transformation plan and operating as a standalone business, issuing equity to finance the strategic transformation plan, pursuing a sale of Exterran for cash, pursuing an all-stock merger with another public company, and pursuing a sale of Exterran’s water business.

Representatives of Wells Fargo Securities reviewed with the Exterran Board Wells Fargo Securities’ preliminary prospective financial information with respect to Exterran, and Exterran management discussed with the Exterran Board the financial and other operating assumptions prepared by Exterran management and incorporated in this preliminary analysis.

Representatives of Wells Fargo Securities and Exterran management also discussed with the Exterran Board Exterran’s financial performance and its business model, as well as current industry trends, key growth opportunities in Exterran’s business, and key risks to Exterran’s business. After discussion, the Exterran Board determined that continuing to execute on the strategic transformation plan and operating as a standalone business was most likely to maximize value for Exterran Stockholders.

On July 27, 2021, Mr. Rossiter contacted Mr. Way to propose a telephone call later that day, to which Mr. Way agreed. During this call, Mr. Rossiter informed Mr. Way that Enerflex desired to re-engage in discussions regarding a potential business combination transaction with Exterran. Mr. Rossiter also informed Mr. Way that the Enerflex Board was meeting to discuss the possibility of exploring a potential transaction between Enerflex and Exterran, and that following such meeting, Mr. Rossiter would contact Mr. Way to further discuss a potential transaction. Mr. Rossiter did not propose any purchase price or other transaction terms during this discussion. Mr. Way communicated to Mr. Rossiter that if Enerflex submitted a proposal, he would discuss the proposal with the Exterran Board to determine whether the Exterran Board felt that there was merit in further exploring a combination transaction with Enerflex.

 

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On August 4, 2021, Enerflex management and a representative from RBC provided the Enerflex Board with an update regarding the discussion between Messrs. Rossiter and Way and due diligence performed to date based solely on publicly available information.

On August 24, 2021, in anticipation of the Exterran Board’s upcoming calendar, Mr. Way contacted Mr. Rossiter, requesting an update on their discussions that took place on July 27, 2021. Mr. Rossiter informed Mr. Way that the Enerflex Board was meeting in the near term, and that Enerflex would be sending a non-binding proposal to Exterran with proposed terms for a potential transaction.

On August 27, 2021, Mr. Rossiter contacted Mr. Way and informed him that Enerflex would be sending a non-binding proposal to Exterran with proposed terms for a potential transaction. Later that day, Mr. Way informed the Exterran Board that Mr. Rossiter had contacted him and that a non-binding proposal would be sent in the coming days.

On August 31, 2021, Enerflex management met with the Enerflex Board to provide an updated analysis of the proposed transaction, including a proposed non-binding offer, negotiation strategy, preliminary financial analysis of the pro forma entity, proposed transaction structure, and preliminary due diligence and integration considerations. Following this meeting on August 31, 2021, Mr. Rossiter delivered a non-binding proposal (which we refer to as the “August Proposal”) to William M. Goodyear, Exterran’s lead independent director. In the August Proposal, Enerflex proposed a business combination transaction between Enerflex and Exterran in which Exterran Stockholders would receive all-stock consideration equal to $5.75 for each share of Exterran Common Stock, through the issuance of 0.932 Enerflex common shares for each share of Exterran Common Stock. In addition, under the August Proposal, Exterran Stockholders would collectively own 26% of the shares of the combined company, and the combined company could achieve $43.0 million of synergies on an annual basis. The August Proposal further stated that, as part of the transaction, all of Exterran’s outstanding debt would be assumed or redeemed and the resulting combined company would be dual listed in Canada and the U.S. Messrs. Way and Goodyear promptly informed the other members of the Exterran Board of the August Proposal.

On September 6, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. Representatives of King & Spalding discussed with the Exterran Board its fiduciary duties in the context of a potential transaction. Representatives of Wells Fargo Securities reviewed with the Exterran Board the terms of the August Proposal, Exterran’s historic and expected financial performance relative to Enerflex’s historic and expected performance (which analysis was based on Enerflex’s publicly available information), three-year historical exchange ratios with respect to Exterran and Enerflex, a premiums paid analysis, and announced synergies in recent transactions in the energy services sector. Representatives of King & Spalding and Wells Fargo Securities also discussed a range of potential responses to Enerflex and next steps that Exterran could pursue. After discussion, the Exterran Board determined to schedule a follow-up meeting to discuss the August Proposal in further detail after Exterran and its advisors had conducted preliminary due diligence of Enerflex’s publicly available information and had further assessed the structuring, tax, regulatory and other legal considerations associated with the August Proposal. The Exterran Board also authorized Messrs. Goodyear and Way to inform Enerflex that Exterran was conducting a preliminary assessment of the August Proposal with its management team and advisors.

On September 17, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. At the meeting, representatives of King & Spalding reviewed a presentation regarding, among other matters, structuring, tax, regulatory and Canadian legal considerations associated with Enerflex’s August Proposal. Representatives of King & Spalding discussed with the Exterran Board its fiduciary duties in the context of a potential transaction, as they had previously done. Representatives of Wells Fargo Securities provided, based on Enerflex’s publicly available information, a preliminary financial assessment of Exterran and Enerflex on a standalone and combined basis, and also discussed with the Exterran Board the merits of a potential combination with Enerflex. Representatives of Wells Fargo Securities also discussed other potential merger partners or acquirors that could be interested in consummating a transaction with Enerflex. After discussion, the Exterran Board instructed Exterran management and representatives of Wells Fargo Securities and King & Spalding to obtain additional clarity from Enerflex regarding the offer structure, valuation framework, financing considerations, synergy and tax assumptions contemplated by the August Proposal. In addition, the Exterran Board authorized Exterran management to negotiate and enter into an engagement letter with Wells Fargo Securities to formally engage Wells Fargo Securities as Exterran’s financial advisor.

On September 21, 2021, Exterran management and representatives of Wells Fargo Securities and King & Spalding met with Enerflex management and representatives of RBC and Norton Rose Fulbright to discuss the offer structure, valuation framework, financing considerations, synergy and tax assumptions contemplated by the August Proposal. Among other matters, Enerflex noted during the meeting that its August Proposal contemplated a fixed value of $5.75, to be paid in Enerflex common shares, Enerflex was open to negotiating a fixed exchange ratio, and that Enerflex contemplated using its existing credit facility to refinance Exterran’s indebtedness in connection with the consummation of a potential transaction.

On September 28, 2021, Exterran entered into an engagement letter with Wells Fargo Securities whereby Wells Fargo Securities was formally engaged as Exterran’s financial advisor in connection with a potential transaction with Enerflex or another third party. In connection with Wells Fargo Securities’ engagement, Wells Fargo Securities provided to Exterran disclosure regarding certain relationships between Wells Fargo Securities and Enerflex, and Exterran determined that no material conflicts existed that prevented Exterran’s retention of Wells Fargo Securities as its financial advisor in connection with the merger.

 

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On September 29, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. At the meeting, Exterran management and representatives of Wells Fargo Securities discussed the meeting held on September 21, 2021 with Enerflex and its representatives. During the meeting, the Exterran Board noted that the relative ownership of Exterran’s stockholders of the combined company was an important component in Exterran’s analysis of a potential transaction with Enerflex. After discussion, the Exterran Board authorized Exterran management and its advisors to enter into a mutual confidentiality agreement and to further diligence Enerflex’s financial performance and the synergies that could be achievable in a potential transaction with Enerflex. The Exterran Board also determined that it would consider making a counterproposal to Enerflex’s August Proposal following the completion of additional due diligence.

On October 3, 2021, Exterran and Enerflex entered into a mutual confidentiality agreement and, following entry into such confidentiality agreement, began to exchange certain confidential information, including financial information, through virtual data rooms regarding the respective companies.

During the first half of October 2021, Exterran, Enerflex, and their respective representatives conducted due diligence regarding the pro forma financial profile of a potential combined company as well as a preliminary synergy analysis.

On October 18, 2021, Mr. Rossiter contacted Mr. Way and stated that he was available to discuss the August Proposal.

On October 19, 2021, Messrs. Way and Rossiter spoke by telephone. During this conversation, Mr. Way noted that the Exterran Board was continuing to evaluate the August Proposal and also believed that the relative ownership of Exterran’s stockholders of the combined company was an important component in Exterran’s analysis of a potential transaction with Enerflex. During the discussion, Mr. Rossiter clarified that the August Proposal was prepared on a relative value basis (i.e., the proposal set forth in the August Proposal regarding the consideration payable in a potential transaction was designed to obtain a certain percentage ownership of the combined company for Exterran’s stockholders, as opposed to a specific value). Messrs. Way and Rossiter also discussed transaction structure, Enerflex’s plans for capitalizing the combined company, Enerflex’s available financing to complete the transaction, timing of a potential transaction and Enerflex’s views regarding governance of the combined company, although neither Mr. Way nor Mr. Rossiter discussed any specific transaction terms or counterproposals. Mr. Way informed Mr. Rossiter that the Exterran Board was meeting to discuss the August Proposal the following day, and he would contact him following this Exterran Board meeting.

On October 20, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. At the meeting, Mr. Way updated the Exterran Board on his most recent discussion with Mr. Rossiter regarding the August Proposal. Mr. Way also noted that Mr. Rossiter clarified that the August Proposal was prepared on a relative valuation basis. Representatives of King & Spalding discussed with the Exterran Board its fiduciary duties in the context of a potential transaction, as they had previously done. Representatives of Wells Fargo Securities then reviewed a preliminary and illustrative financial analyses of Exterran and Enerflex (which was prepared based on Enerflex’s non-public financial information, as opposed to publicly available information). Exterran management then discussed the conversations they had with prospective Debt Financing sources regarding a potential refinancing of Exterran’s indebtedness. After discussion, the Exterran Board authorized Exterran management and its representatives to inform Enerflex that Exterran was willing to continue to evaluate a potential transaction with Enerflex, but a 26% relative ownership by Exterran’s stockholders in the combined company did not adequately compensate Exterran’s stockholders for the value that Exterran would bring to the combined company. The Exterran Board also instructed Exterran management and its representatives to continue to perform diligence on Enerflex to allow the Exterran Board to make a more definitive counterproposal to Enerflex. The following day, at the direction of the Exterran Board, Mr. Way sent Mr. Rossiter a letter informing Enerflex of the determination of the Exterran Board that the merger proposal remained of interest and Exterran would require more time to complete its due diligence efforts and would submit a counter proposal.

On October 23, 2021, Mr. Rossiter contacted Mr. Way and emphasized the need for Enerflex to receive a counterproposal from Exterran in order for the parties to continue to evaluate a potential transaction.

On October 26, 2021, Enerflex management provided the Enerflex Board with an update on the status of discussions with Exterran as well as an updated analysis of the proposed transaction, including the results of the preliminary financial due diligence conducted.

On October 28, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. At the meeting, representatives of King & Spalding discussed with the Exterran Board its fiduciary duties in the context of a potential transaction, as they had previously done. After discussion, the Exterran Board authorized Exterran’s management and its advisors to submit a counterproposal (which we refer to as the “November Proposal”) to Enerflex. Under the November Proposal, Exterran’s stockholders would receive all-stock consideration, through a fixed exchange ratio, such that Exterran’s stockholders would collectively own 30% of the shares of the combined company following the transaction. The November Proposal further stated that the board of directors of the combined company would include representation by designees of Exterran in proportion to the holdings of the Exterran Stockholders. Also at the meeting, the Exterran Board discussed with Wells Fargo Securities potential third parties that could be interested in pursuing a potential transaction with Exterran and, in connection therewith, the Exterran Board authorized Wells Fargo Securities to contact Party A and Party B, both of which were potential strategic acquirers who the Exterran Board and Wells Fargo Securities determined could be interested in a potential transaction, to determine if they would be interested in evaluating a potential strategic transaction with Exterran.

 

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On October 29, 2021, Mr. Way contacted Mr. Rossiter to confirm that Exterran would be sending Enerflex the November Proposal the following week, after Exterran had reported its financial results for its third fiscal quarter of 2021. The November Proposal was sent to Enerflex on November 3, 2021. The November Proposal stated that the possible combination had significant strategic merit and would enable the shareholders of the combined company to benefit from operational efficiencies as well as increased scale, in both the financial markets and the industrial end markets. The November Proposal further stated that the August Proposal did not reflect the relative contribution both parties would bring to a transaction. Following receipt of the November Proposal, several calls were held between Enerflex management, Exterran management, and members of RBC and Wells Fargo Securities to address confidential due diligence items. Enerflex management provided the Enerflex Board with a verbal update on this development at a November 4, 2021 meeting.

On November 5, 2021, representatives of Wells Fargo Securities, acting at the direction of the Exterran Board, contacted Party A to determine if they would be interested in evaluating a potential strategic transaction with Exterran. After evaluating a potential strategic transaction with Exterran, Party A declined to pursue a potential strategic transaction with Exterran.

On November 8, 2021, Messrs. Way and Rossiter discussed the November Proposal. Mr. Rossiter noted that Enerflex was working through its internal financial analyses to formulate a potential response. During the weeks of November 8, 2021 and November 15, 2021, Exterran management and Enerflex management, and representatives of Wells Fargo Securities and RBC continued to further discuss the capital expenditures, leverage profile, and liquidity of Exterran, Enerflex, and the combined company that would result from a potential transaction.

On November 18, 2021, Mr. Rossiter informed Mr. Way that the Enerflex Board would be meeting later in the month to review the November Proposal and the overall status of the discussions regarding the potential transaction.

Also on November 18, 2021, representatives of Wells Fargo Securities, acting at the direction of the Exterran Board, contacted Party B to determine if they would be interested in evaluating a potential strategic transaction with Exterran. After evaluating a potential strategic transaction with Exterran, Party B declined to pursue a potential strategic transaction with Exterran.

On December 1, 2021, Enerflex management provided the Enerflex Board with a further update on the proposed transaction. During this meeting, participants discussed Enerflex’s revised combination forecast and the results of further financial due diligence.

On December 3, 2021, Messrs. Rossiter and Way discussed the potential transaction. Mr. Rossiter confirmed that the Enerflex Board had authorized Enerflex to continue discussions regarding the potential transaction.

Mr. Rossiter informed Mr. Way that further diligence would be required by Enerflex with respect to certain of Exterran’s contractual relationships. Mr. Rossiter further noted that Enerflex was continuing to evaluate the relative ownership level Exterran proposed in the November Proposal. Messrs. Rossiter and Way agreed to further discuss the November Proposal the following week.

On December 7, 2021, Messrs. Way, Rossiter, Exterran management and Enerflex management, and representatives of Wells Fargo Securities and RBC met to discuss the November Proposal, certain due diligence items, as well as transaction structure and mutually acceptable terms for a combination transaction. At the meeting, Mr. Rossiter proposed that Exterran Stockholders would collectively own 27% of the shares of the combined company following the transaction (as opposed to 30% of the shares of the combined company following the transaction as contemplated by the November Proposal). Mr. Way stated that he would communicate this proposal to the Exterran Board.

On December 9, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. At the meeting, the Exterran Board discussed the December 7, 2021 meeting with Enerflex and its proposal regarding the relative ownership that Exterran’s stockholders would retain in the combined company. After discussion, the Exterran Board authorized Exterran to submit a counterproposal (which we refer to as the “December Proposal”) to Enerflex. Under the December Proposal, Exterran Stockholders would collectively own 27.5% of the shares of the combined company following the transaction. The December Proposal further stated that the board of directors of the combined company would include three Exterran designees.

On December 9, 2021, Mr. Way contacted Mr. Rossiter to convey the December Proposal. During this discussion, Mr. Rossiter stated that the 27.5% relative ownership level of Exterran Stockholders in the combined company was acceptable to Enerflex. Messrs. Way and Rossiter agreed that both companies and their respective advisory teams should continue to work expeditiously with respect to due diligence and the negotiation of other key terms of a potential transaction.

During the weeks of December 6, 2021 and December 13, 2021, Exterran and Enerflex and their respective advisors held numerous telephonic meetings to conduct legal and commercial diligence, including diligence calls related to contract backlogs and commercial pipelines, Exterran’s water business and technology, the parties’ ECO business, continued synergy analysis, finance and tax matters, labor and employment matters, information technology matters, insurance matters, tax structuring and foreign regulatory matters.

On December 10, 2021, Enerflex sent Exterran a draft exclusivity agreement under which each of Enerflex and Exterran would agree to discuss a potential transaction on an exclusive basis for a period of thirty days. The draft exclusivity agreement also proposed, among other matters, that the funds managed by Chai Trust and each director and officer of Exterran and their Affiliates

 

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would sign, concurrently with the signing of the Merger Agreement for a potential transaction, a voting agreement in favour of the transaction, and that Chai Trust would be prohibited from selling any Enerflex common shares it received in the transaction for at least six months following Closing.

On December 13, 2021, Enerflex management provided the Enerflex Board with an update on the status of discussions, including non-binding deal points under consideration and a proposed approach to due diligence.

On December 16, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. Representatives of King & Spalding reviewed key issues that would arise in connection with the negotiation of a Merger Agreement and discussed with the Exterran Board its fiduciary duties in the context of a potential transaction, as they had previously done. Representatives of King & Spalding also discussed Enerflex’s proposal regarding voting agreements that would be executed in connection with the execution of a definitive agreement for the potential transaction, and noted that any such voting agreements would need to be discussed separately with representatives of Chai Trust. The Exterran Board authorized King & Spalding to discuss the voting agreements separately with representatives of Chai Trust and Sidley Austin LLP, counsel to Chai Trust (which we refer to as “Sidley”). After discussion, the Exterran Board authorized Exterran to enter into an exclusivity agreement with Enerflex whereby each of Enerflex and Exterran would discuss a potential transaction on an exclusive basis through December 31, 2021.

Also on December 16, 2021, Exterran and Enerflex entered into the exclusivity agreement on the terms approved by the Exterran Board earlier in the day. Following execution of the exclusivity agreement, Exterran and Enerflex continued to engage in due diligence activities and additional confidential non-public information was exchanged and several diligence related calls occurred between both companies and their respective advisors.

Following the December 16, 2021 Exterran Board meeting, as authorized by the Exterran Board, representatives of King & Spalding contacted representatives of Chai Trust and Sidley to inform them of the December Proposal and the exclusivity agreement entered into by Exterran and Enerflex. Representatives of King & Spalding also discussed Enerflex’s proposal regarding voting agreements with Chai Trust proposed to be executed concurrently with the signing of the Merger Agreement for a potential transaction. Representatives of Sidley and Chai Trust noted that Chai Trust was amenable to customary, reciprocal voting agreements given by certain Exterran Stockholders and Enerflex Shareholders, but not to a restriction solely on Chai Trust’s transfer of any Enerflex common shares held following the closing of a potential transaction.

On December 17, 2021, Enerflex management provided the Enerflex Board with an update on the due diligence results to date and management’s proposed integration strategy.

On December 19, 2021, King & Spalding delivered to Norton Rose Fulbright an initial draft of the Merger Agreement. The draft Merger Agreement included, among other matters, customary representations and warranties and covenants, and customary closing conditions. In addition, the draft Merger Agreement provided that the parties would each be required to use their respective reasonable best efforts to obtain regulatory approvals and reflected the governance arrangements proposed in the December Proposal.

On December 23, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. At the meeting, Mr. Way and representatives of King & Spalding provided an update regarding the potential transaction, including an update regarding the status of Exterran’s and Enerflex’s legal and commercial diligence to date and the status of the negotiation of a draft Merger Agreement. Representatives of King & Spalding and representatives of Pearl Meyer, Exterran’s independent compensation consultant, also reviewed with the Exterran Board considerations under section 280G of the Code in connection with a potential transaction, and also discussed potential retention arrangements for employees for 2022 in connection with a potential transaction.

During the weeks of December 20, 2021 and December 27, 2021, representatives of Exterran and Enerflex and their respective advisors held regular telephonic meetings to conduct additional legal and commercial diligence on the other party, and continued negotiation of the Merger Agreement.

On December 28, 2021, Enerflex proposed to Exterran that the exclusivity agreement be amended to extend through January 14, 2021.

On December 29, 2021, Norton Rose Fulbright delivered a revised draft of the Merger Agreement to representatives of King & Spalding, which included, among other things, (i) termination fees for Exterran and Enerflex triggered, in each case, off the equity value of Exterran, (ii) no financing covenants or financing termination fee, (iii) greater flexibility for Enerflex with regard to regulatory and interim operating covenants, termination rights and conditions to Closing and (iv) the inclusion of one Exterran designee on the board of directors of the combined company.

Also on December 29, 2021, the Enerflex Board held a meeting where the Enerflex management discussed the status of due diligence, potential financing arrangements under consideration to effect the transaction, and the strategic rationale for the proposed transaction.

 

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Additionally on December 29, 2021, Enerflex informed Exterran that, rather than using the existing Enerflex credit facility to refinance Exterran’s indebtedness in connection with a potential transaction, it intended to obtain a $1.5 billion commitment letter from RBC that would be used to repay Enerflex’s and Exterran’s indebtedness and provide financing for the combined company. Over the course of the next several weeks leading up to the signing of the Merger Agreement, Enerflex and its representatives continued to negotiate the terms of the RBC commitment letter with RBC and its representatives.

On December 30, 2021, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. Representatives of King & Spalding reviewed the current draft of the Merger Agreement and provided an overview of the key substantive issues included in Norton Rose Fulbright’s revised draft Merger Agreement, including (i) the fact that Exterran and Enerflex were still far apart on the proposed size of the termination fees Exterran and Enerflex would have to pay the other in certain circumstances, (ii) the lack of inclusion of financing covenants or a financing termination fee in the revised draft, (iii) the parties’ respective obligations to obtain antitrust clearance for the potential transaction, (iv) the scope of the mutual no-shop provisions, (v) Enerflex’s request for a transfer restriction agreement binding on Chai Trust, (vi) the conditions under which the parties would be permitted to terminate the Merger Agreement, (vii) the definition of “Material Adverse Effect” in the Merger Agreement, (viii) the number of Exterran designees to be included on the board of directors of the combined company and who would be permitted to designate such directors, (ix) the proposed outside date for the transaction, and (x) the scope of the interim operating covenants binding on Exterran and Enerflex. Representatives of King & Spalding also discussed with the Exterran Board its fiduciary duties in the context of a potential transaction, as they had previously done. The Exterran Board discussed each of these substantive points and at the conclusion of this discussion, the Exterran Board authorized Exterran management and King & Spalding to continue to negotiate the terms of the Merger Agreement as it deemed appropriate and necessary, subject to the parameters on terms set by the Exterran Board during this discussion. Representatives of Wells Fargo Securities and King & Spalding also discussed with the board Enerflex’s updated financing plans regarding the potential transaction, including the $1.5 billion commitment letter it intended to obtain from RBC. After discussion, the Exterran Board authorized representatives of Exterran to enter into an extension to the existing exclusivity agreement through January 14, 2022. At the meeting, the Exterran Board also discussed and unanimously approved entering into retention agreements with four Exterran employees who were not executive officers, each of whom the Exterran Board believed were critical to executing on Exterran’s business plan in the interim period and in facilitating a successful signing and closing of a potential transaction.

Following the December 30, 2021 meeting of the Exterran Board, Mr. Way contacted Mr. Rossiter to provide a brief update regarding the key open substantive issues in the current draft Merger Agreement. Messrs. Way and Rossiter agreed that both companies should continue to negotiate the terms of the potential transaction as well as to complete the due diligence process.

On January 7, 2022, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. At the meeting, the Exterran Board reviewed the severance that may be payable to certain executives of Exterran as a result of the transaction. Representatives of King & Spalding reviewed an issues list with respect to the Merger Agreement, including (i) Exterran’s request for the inclusion of customary financing representations, financing covenants and a financing termination fee, (ii) the amount of the other termination fees Exterran and Enerflex would be required to pay the other in certain circumstances, which Enerflex proposed be calculated in all instances off the equity value of Exterran, (iii) Enerflex’s proposal that the board of the combined company contain one Exterran designee, and Exterran’s continued request for additional representation on the board of the combined company, (iv) the removal of a proposed transfer restriction agreement binding only Chai Trust, (v) Exterran’s request for increased flexibility with regard to Exterran’s operation of its business between signing and closing, and customary restrictions on Enerflex’s operation of its business between signing and closing, and (vi) Enerflex’s proposal that Enerflex would not be required to effect any divestitures or remedies that would be burdensome to Enerflex in furtherance of obtaining regulatory approvals. Representatives of King & Spalding also discussed with the Exterran Board its fiduciary duties in the context of a potential transaction.

The Exterran Board discussed each of these substantive points and at the conclusion of this discussion, authorized Exterran management and King & Spalding to negotiate the terms of the Merger Agreement as it deemed appropriate and necessary, subject to the parameters on terms set by the Exterran Board during this discussion, including the Exterran Board’s request that Exterran management continue to push for the inclusion of customary financing covenants, a financing termination fee of $60.0 million, increased termination fees payable by Enerflex in certain circumstances based on a percentage of Enerflex’s equity value and increased representation by Exterran on the board of the combined company. The Exterran Board also approved the framework of a retention program that would be used to retain key employees of Exterran, none of whom were executive officers, in connection with the consummation of a potential transaction.

Also at the January 7, 2022 meeting of the Exterran Board, representatives of King & Spalding discussed a potential approval under section 203 of the DGCL (the “203 Waiver”) that would apply to any discussions or negotiations, and any agreements, arrangements or understandings resulting from such discussions or negotiations, that Chai Trust and/or its representatives may have with Enerflex and/or its representatives regarding the terms of a potential voting and transfer restriction agreement. Representatives of King & Spalding noted that to date, none of Chai Trust or its representatives had any direct or indirect discussions with Enerflex or its representatives regarding such a potential agreement, and that it would be advisable to approve 203 Waiver in the event that any such direct discussions between Chai Trust or its representatives became necessary or advisable. After discussion, the Exterran Board approved the 203 Waiver.

 

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Following the January 7, 2022 Exterran Board meeting, representatives of King & Spalding contacted representatives of Chai Trust and Sidley to discuss Enerflex’s proposed transfer restriction agreement binding solely Chai Trust following closing of the potential transaction. Representatives of Chai Trust and Sidley reiterated that Chai Trust was not amenable to such a restriction on transfer of any Enerflex common shares to be held by Chai Trust following the closing of a potential transaction.

Between January 8, 2022 and January 11, 2022, representatives of Norton Rose Fulbright and King & Spalding met telephonically to discuss revisions to the Merger Agreement and further revised the draft Merger Agreement.

On January 12, 2022, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. Representatives of King & Spalding provided an overview of the substantive open issues, which included, among other matters, (i) the amount of the financing fee required to by paid by Enerflex in certain circumstances, which Exterran proposed to be $60.0 million and for which no counterproposal had yet been received, (ii) the amount of the other termination fees required to be paid by Enerflex in certain circumstances, which Exterran proposed to be 4% of the equity value of Enerflex (approximately $21.0 million) and which Enerflex proposed to be 4% of the equity value of Exterran (approximately $8.0 million), (iii) the scope of the efforts standard regarding regulatory covenants, (iv) employee benefits for continuing employees following the closing, (v) Enerflex’s proposal that the board of the combined company contain one Exterran designee, and Exterran’s continued request for additional representation and (vi) Exterran’s request for increased flexibility with regard to Exterran’s operation of its business between signing and closing, and customary restrictions on Enerflex’s operation of its business between signing and closing. Representatives of King & Spalding also discussed with the Exterran Board its fiduciary duties in the context of a potential transaction, as they had previously done. The Exterran Board discussed each of these substantive points and at the conclusion of this discussion, the Exterran Board authorized Exterran management and King & Spalding to negotiate the terms of the Merger Agreement as it deemed appropriate and necessary, subject to the parameters on terms set by the Exterran Board during this discussion.

On January 14, 2022, Enerflex management met with the Enerflex Board to provide an update on the status of due diligence, financing considerations and operational and financing modeling. A representative of RBC joined for a portion of the meeting to provide a financial overview and discuss the valuation of the deal.

On January 15, 2022, Exterran management and Enerflex management met to discuss the material open issues in the Merger Agreement. Among other things, the parties discussed the amounts of the proposed financing termination fee and other termination fees payable by Enerflex and Exterran in certain circumstances. Enerflex management proposed a financing termination fee of $15.0 million, and a termination fee of $15.0 million payable by Enerflex in certain other circumstances. Exterran management stressed the importance of meaningful termination fees to the Exterran Board to increase deal certainty between signing and closing. The parties also discussed the treatment of continuing employees following the closing. Additionally, Enerflex management noted that the Enerflex Board was not willing to provide Exterran with increased representation on the board of the combined company, and continued to reiterate that Exterran would be permitted to have one designee to the board of the combined company, which Enerflex proposed would be selected by Enerflex. Exterran management stated that they would take Enerflex’s position back to the Exterran Board.

On January 16, 2022, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. Representatives of King & Spalding reviewed proposed resolutions of the remaining substantive points discussed on the January 15, 2022 call among principals of Exterran and Enerflex. In particular, King & Spalding and the Exterran Board discussed a counterproposal whereby (i) Exterran’s termination fees payable in certain circumstances would be $10.0 million (as opposed to $8.0 million previously agreed by Exterran), Enerflex’s financing termination fee would be increased to $40.0 million and the termination fees payable by Enerflex in certain other circumstances would be increased to $20.0 million less any amounts required to be withheld or deducted on account of taxes, (ii) Enerflex would agree to provide substantially similar base wages, bonus opportunities and severance benefits to continuing employees following the closing until December 31, 2022 and (iii) Exterran would request two Exterran designees on the board of the combined company. Representatives of King & Spalding also discussed with the Exterran Board its fiduciary duties in the context of a potential transaction, as they had previously done. Following discussion, the Exterran Board unanimously authorized Exterran management and King & Spalding to negotiate the terms of the Merger Agreement as it deemed appropriate and necessary, subject to the parameters on terms set by the Exterran Board during this discussion.

Over the course of the week of January 16, 2022, representatives of King & Spalding and Norton Rose Fulbright had several calls, along with Exterran management and Enerflex management, to discuss the remaining open issues in the draft Merger Agreement. Also on January 18, 2022, representatives of Sidley and Chai Trust discussed the terms of the proposed voting agreement, to be entered into concurrently with the signing of the Merger Agreement for a potential transaction, with representatives of Norton Rose Fulbright and King & Spalding. During this call, Enerflex agreed that Chai Trust would not be subject to a transfer restriction agreement with respect to their Enerflex common shares following the closing.

On January 20, 2022, the Exterran Board met with Exterran management and representatives of Wells Fargo Securities and King & Spalding. Representatives of King & Spalding reviewed with the board the proposed final resolution of the substantive issues in the Merger Agreement and related transaction documents, which included (i) a proposed financing termination fee of $30.0 million less any amounts required to be withheld or deducted on account of taxes, (ii) Enerflex’s agreement to provide

 

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substantially similar base wages, bonus opportunities and severance benefits to continuing employees following the closing until December 31, 2022 and (iii) Exterran’s agreement to allow Enerflex to designate one current Exterran Board member to be appointed to the Enerflex Board as of the Effective Time. Representatives of King & Spalding also reviewed with the Exterran Board the board’s fiduciary duties in the context of the proposed transaction. Representatives of Wells Fargo Securities provided an update to the Exterran Board regarding the terms and conditions of Enerflex’s financing commitment, as well as the financial forecast of Enerflex and the combined company. After these updates, representatives of King & Spalding led a discussion regarding next steps for the potential transaction, including the negotiation of the final transaction documentation and the anticipated announcement of the transaction in the morning of January 24, 2022. The Exterran Board expressed support for the final resolution of the open substantive issues, in line with the discussions that occurred at the meeting. The Exterran Board agreed to hold another meeting in the morning of January 23, 2022 in anticipation of being able to review and approve the Merger Agreement.

Also on January 23, 2022, the Exterran Board held a special telephonic meeting with Exterran management and representatives of King & Spalding and Wells Fargo Securities present. Prior to the meeting, the Exterran Board had received copies of the Merger Agreement and related documents and a summary of the terms of the transaction, as well as presentation materials prepared by representatives of King & Spalding and Wells Fargo Securities.

Representatives of Wells Fargo Securities reviewed with the Exterran Board its final financial analyses of the exchange ratio in the proposed merger and answered questions regarding such analyses. Representatives of Wells Fargo Securities then delivered to the Exterran Board its oral opinion, which was subsequently confirmed by delivery of a written opinion dated January 23, 2022, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Wells Fargo Securities in preparing its opinion, the Exchange Ratio in the proposed merger was fair, from a financial point of view, to the Exterran Stockholders. Also at the meeting, representatives of King & Spalding reviewed with the board the final terms of the Merger Agreement and related transaction documents, as well as the board’s fiduciary duties in the context of the proposed transaction, as they had previously done.

Also on January 23, 2022, the Enerflex Board held a meeting with Enerflex senior management and for a portion of the meeting, representatives of RBC, where the Enerflex Board received an update on the proposed transaction, the status of negotiations and the material terms of the Merger Agreement, as well as a presentation on key due diligence findings. Also at this meeting, RBC reviewed with the Enerflex Board its financial analyses of the consideration payable to Exterran Stockholders pursuant to the Merger Agreement and rendered to the Enerflex Board its oral opinion, which was subsequently confirmed in RBC’s written opinion dated January 23, 2022 and attached hereto at “Appendix C – RBC Fairness Opinion”, to the effect that, as of the date of such opinion, and based upon and subject to the assumptions, limitations, qualifications, conditions and other matters stated therein, the Merger Consideration payable to Exterran Stockholders pursuant to the Merger Agreement was fair, from a financial point of view, to Enerflex. The full text of the RBC Fairness Opinion, attached as “Appendix C – RBC Fairness Opinion”, sets forth, among other things, the independence of RBC, the credentials of RBC, the scope of RBC’s review in connection with the RBC Fairness Opinion, assumptions made and limitations to RBC’s review in connection with the RBC Fairness Opinion, and the approach taken by RBC in considering the fairness of the Merger Consideration from a financial point of view to Enerflex. This summary is qualified in its entirety by reference to the full text of the RBC Fairness Opinion.

Following the above discussions and determinations, and after careful review and discussion by the Enerflex Board, including, but not limited to, consideration of the factors described in the section entitled “The Transaction – Enerflex’s Reasons for the Transaction”, the Enerflex Board unanimously (A) determined that it is in the best interests of Enerflex to enter into the Merger Agreement, (B) approved the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated hereby, including the Merger and the Debt Financing, and (C) resolved to recommend that the Enerflex Shareholders approve the Share Issuance Resolution and directed that such matter be submitted for consideration by the Enerflex Shareholders at the Enerflex Shareholder Meeting.

On the morning of January 24, 2022, Exterran and Enerflex executed and delivered the Merger Agreement. Contemporaneously with the execution of the Merger Agreement, all of the funds managed by Chai Trust that own Exterran Common Stock and all of the directors and officers of Exterran who together own 9,488,511 shares of the outstanding Exterran Common Stock as of the date of this Management Information Circular, representing 28.1% of the outstanding shares of Exterran Common Stock and directors and officers of Enerflex as of January 23, 2022, who together own approximately 569,915 of the outstanding Enerflex Common Shares as of the date of this Management Information Circular, representing approximately 0.64% of the outstanding Enerflex Common Shares entered into voting support agreements, pursuant to which the supporting stockholders and shareholders, as applicable, agreed, subject to the terms and conditions of the voting support agreements, to vote their respective shares in favour of the Transaction at the Exterran Stockholder Meeting and the Enerflex Special Meeting, respectively, each to be called to consider the Transaction. The Transaction was announced before the market opened on January 24, 2022.

Events Subsequent to the Execution of the Merger Agreement

Following the execution of the Merger Agreement, the Enerflex Board continued to oversee the execution and implementation of the Transaction, as well as recent developments in the businesses of Enerflex and Exterran.

 

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On March 2, 2022, following the execution of the Merger Agreement, Enerflex was advised by Exterran of a decision of the Local Labor Board (“Labor Board”) of the State of Tabasco in Mexico (the “Labor Board Decision”) in which a former employee of one of Exterran’s subsidiaries was awarded approximately U.S.$120 million in connection with a dispute relating to the employee’s severance pay following termination of his employment. As more particularly described in this Management Information Circular in “Note 15 - Commitments and Contingencies-Litigation and Claims” to Exterran’s quarterly financial statements attached as Schedule B to “Appendix E – Information Concerning Exterran Corporation” and “Legal Proceedings and Regulatory Actions” in “Appendix E – Information Concerning Exterran Corporation”. Exterran has appealed the Labor Board Decision and believes the Labor Board Decision is in error and has no credible basis in law or fact. For instance, in 2017, the Labor Board ruled that the former employee was entitled to approximately $1.4 million MXN (approximately $70,000 at the prevailing exchange rate) as severance based on an appellate court’s determination based on Exterran’s records that the employee’s salary was approximately $3,500 MXN per day. However, on February 24, 2022, the Labor Board Decision increased the amount the former employee was entitled to approximately $120 million, an increase of over 170,000%, ignoring the actual salary that had been established and using approximately U.S.$21,000 per day, an increase of over 12,000% and an amount never actually received while working for Exterran’s subsidiary. Effectively, the Labor Board awarded the employee approximately 1,900 years of severance based on the correct wage rate. Enerflex engaged and sought advice from two separate expert legal litigation counsel in Mexico, Norton Rose Fulbright US MX, S.C. and Marvan, Gonzalez, Graf Y Gonzalez Larrazolo Abogados in respect of the Labor Board Decision.

In July 2022, due to the potential significance of the Labor Board Decision, the Enerflex Board retained separate legal counsel in Canada, Stikeman Elliott LLP (“Stikeman”), to assist it in respect of their directors’ duties. The Enerflex Board subsequently met with management, Norton Rose Fulbright and Stikeman, to consider the duties of the Enerflex Board in the current circumstances and practical considerations as they may relate to the discharge of such duties. Following a review and evaluation of each director’s independence and discussion, the Enerflex Board unanimously determined that it was in the best interests of Enerflex to constitute a special committee (the “Enerflex Special Committee”) of independent directors of Enerflex to, among other things, provide a recommendation to the Enerflex Board as to what is in the best interests of Enerflex in the circumstances. The Enerflex Special Committee is composed of Kevin Reinhart (Chair), Fernando Assing, Maureen Cormier Jackson, Byron Dunn, Mona Hale, Stanley Marshall, Juan Carlos Villegas and Michael A. Weill, each of whom was determined to be independent of Exterran, the Transaction and related matters. The Enerflex Board also instructed management to prepare a financial analysis of the potential financial implications to Enerflex of various potential scenarios related to the Transaction. The Enerflex Special Committee met separately with Stikeman present and discussed, among other matters, the implications of such scenarios, aspects of the Committee’s duties and logistical matters related to the Enerflex Special Committee’s mandate.

Both the Enerflex Board and the Enerflex Special Committee met three times between July 25, 2022 and August 10, 2022. During such meetings management provided updates regarding the Labor Board Decision and incidents that had occurred following execution of the Merger Agreement at an Exterran project worksite in Kurdistan (as more particularly described in “Appendix G – Information Concerning the Combined Company – Risk Factors”), its financial analysis of various scenarios and the strategic rationale regarding the Transaction. Legal advisors, including Enerflex’s Delaware counsel who attended a meeting of the Enerflex Board and the Enerflex Special Committee, provided advice to the Enerflex Board and the Enerflex Special Committee regarding the Labor Board Decision and the Transaction. After each such meeting, the Enerflex Special Committee met separately with Stikeman present, reconfirmed the independence of each member and further discussed the expert advice received, the presentations made by management and the implications of various potential scenarios. At the August 10, 2022 meeting of the Enerflex Special Committee, after considering, among other things, developments since the execution of the Merger Agreement, the previously received advice of legal counsel, the factors described in the section entitled “The Transaction – Enerflex’s Reasons for the Transaction” and management’s recommendation that Enerflex should continue to pursue the completion of the Transaction, and such other matters as the Enerflex Special Committee considered appropriate in the circumstances, the Enerflex Special Committee unanimously resolved to recommend to the Enerflex Board that it was in the best interests of Enerflex that Enerflex continue to pursue the completion of the Transaction.

At the August 10, 2022 meeting of the Enerflex Board, the Enerflex Board received the report of the process undertaken by the Enerflex Special Committee and its recommendation. After considering such matters as it considered appropriate in the circumstances, including the matters described above, the process undertaken by the Enerflex Special Committee, and the unanimous recommendation of the Enerflex Special Committee, the Enerflex Board unanimously accepted the Enerflex Special Committee’s recommendation and unanimously determined that it was in the best interests of Enerflex that Enerflex continue to pursue the completion of the Transaction.

On September 6, 2022, the Enerflex Board met, with management, Norton Rose Fulbright and Stikeman in attendance. The Enerflex Board reviewed the process to date, received an update from management of the status of the Transaction and reviewed and discussed a draft of this Management Information Circular. At such meeting, the participants discussed, among other matters, the better-than-expected financial results of Enerflex and Exterran since the signing of the Merger Agreement, as well as the social unrest at the Exterran project worksite in Kurdistan, and developments relating to the Labor Board Decision. The Enerflex Special Committee then held a separate meeting with Stikeman present, reconfirmed the independence of each member and discussed the status of the Transaction and reviewed and discussed a draft of this Management Information Circular. After further review following such meeting, the Enerflex Special Committee unanimously resolved to recommend that the Enerflex Board approve this Management Information Circular, including the recommendation that Enerflex Shareholders vote for the Share

 

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Issuance Resolution, as being in the best interests of Enerflex. The Enerflex Board received the recommendation of the Enerflex Special Committee and, after considering such additional matters as it considered appropriate in the circumstances, the Enerflex Board unanimously accepted the Enerflex Special Committee recommendation and unanimously determined to approve this Management Information Circular, including the recommendation that Enerflex Shareholders vote for the Share Issuance Resolution.

Board of Directors and Management of Enerflex after the Transaction

Board of Directors

At the Effective Time, all current members of the Enerflex Board will continue to serve as directors of Enerflex and one of the directors of Exterran will be appointed to the Enerflex Board in accordance with the Merger Agreement.

Under the Merger Agreement, Enerflex agreed to take all actions necessary to designate and appoint one of the directors of Exterran, as of the date of the Merger Agreement, to serve as a director on the Enerflex Board immediately after the Effective Time, until such director’s successor is elected and qualified or such director’s earlier death, resignation or removal, in each case in accordance with Enerflex’s constating documents.

Under the Merger Agreement, Enerflex agreed to take all actions necessary to cause the Exterran designated director to be nominated for election so that such director has the opportunity to be on the Enerflex Board for at least one year following the Effective Time.

Following the above-noted appointment, the Enerflex Board is expected to consist of 10 directors following the Closing, composed of the nine current members of the Enerflex Board and one current member of the Exterran Board.

Management

Upon completion of the Transaction, Enerflex will continue to be led by its current senior management including Marc Rossiter, as Chief Executive Officer and Sanjay Bishnoi, as Chief Financial Officer.

Board of Directors and Management of Surviving Corporation after the Transaction

Board of Directors

Upon completion of the Transaction, all the current directors of Merger Sub, will serve as directors of the Surviving Corporation to hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

Management

Upon completion of the Transaction, all the current officers of Merger Sub will be the officers of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

Enerflex’s Reasons for the Transaction

At its meeting held on January 23, 2022 after due consideration and extensive consultation with Enerflex’s management and outside legal and financial advisors to Enerflex and the Enerflex Board, and following review and consideration of, among other things, the RBC Fairness Opinion, the Enerflex Board unanimously approved the Merger Agreement and the Transaction, determined that the Transaction was in the best interests of Enerflex and fair to the Enerflex Shareholders and directed that the Share Issuance Resolution be submitted to the Enerflex Shareholders for approval at the Enerflex Special Meeting. In considering the Transaction and making the recommendation to the Enerflex Shareholders, the Enerflex Board considered a number of factors (which are not necessarily presented in order of relative importance), with a view to the best interests of Enerflex, including but not limited to the following:

Anticipated Benefits of the Transaction

The anticipated benefits from the Transaction are derived from the financial and operational synergies to be realized as a combined company. The all-share combination, and the resulting entity upon completion of the Transaction, will continue to operate as Enerflex, with current Enerflex Shareholders controlling approximately 72.5% and current Exterran Stockholders controlling approximately 27.5% of the pro forma entity on a non-diluted basis. The Enerflex Board believes the strategic rationale for the Transaction are as follows (which list includes any updates to the anticipated benefits of the Transaction disclosed since the Enerflex Board approved the Transaction):

 

•

Creates a premier integrated global provider of energy infrastructure:

 

○

Highly complementary product lines, geographies, and asset bases provide enhanced scale, efficiencies, and expanded offerings for customers.

 

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○

The pro forma geographic exposure will be well-balanced with approximately 25-35% of revenues from each of North America, the Middle East, and Latin America.

 

•

Accelerates growth of gross margin from recurring segments:

 

○

Combination significantly accelerates the generation of predictable, recurring gross margin from energy infrastructure and after-market services platforms.

 

○

Over 70% of the combined company’s gross margin will derive from recurring sources, strengthening its margin profile and reducing market cyclicality.

 

•

Offers improved operational efficiencies:

 

○

As of January 23, 2022, expected to realize at least U.S.$40 million of annual run-rate synergies within 12 to 18 months after Closing through overhead savings and operating efficiencies (which expectation has since been updated to U.S.$60 million of annual run-rate synergies).

 

•

Accretive to Enerflex Shareholders:

 

○

As of January 23, 2022, expected to approximately double Adjusted EBITDA and be approximately 50% accretive to cash flow per share and approximately 50% accretive to earnings per share (subject to purchase price allocation to be determined upon Closing), for Enerflex Shareholders (which expectation has since been updated to 20% accretive to cash flow per share and 11% accretive to earnings per share).

 

○

As of January 23, 2022, expected enhanced scale with pro forma 2023 Adjusted EBITDA of U.S.$360 million to U.S.$400 million, inclusive of synergies (which expectation has since been updated to pro forma 2023 Adjusted EBITDA of U.S.$380 million to U.S.$420 million).

 

○

Meaningful excess free cash flow beginning in 2023 that supports debt reduction, shareholder returns, and continued growth.

 

○

After Closing, Enerflex expects to maintain its quarterly dividend of $0.025 per Enerflex Common Share.

 

•

Transaction benefits from a long-term, stable capital structure:

 

○

The combined company will benefit from a capital structure that provides ample liquidity.

 

○

In conjunction with the Transaction, Enerflex has entered into a binding agreement with the Royal Bank of Canada to provide Enerflex with a fully committed financing consisting of a U.S.$700 million 3-year revolving credit facility and a U.S.$925 million 5-year bridge loan facility. The bridge loan will provide financing to backstop an anticipated issuance of new debt securities prior to Closing. The committed financing is sufficient to fully repay outstanding Enerflex and Exterran notes and revolving credit facilities and support putting in place a new capital structure, provide for capital expenditures and other ordinary course capital needs, and provide significant liquidity for the pro forma business.

 

○

The new revolving credit facility will be subject to a bank-adjusted total net debt to EBITDA covenant of 4.5x, stepping down to 4.0x by the fourth quarter of 2023.

 

○

As of January 23, 2022, Enerflex targeted a bank-adjusted net debt to EBITDA ratio of 2.5x - 3.0x within 12 to 18 months after Closing (which target has since been updated to be a bank-adjusted net debt to EBITDA ratio of less than 2.5x).

 

○

Following capital project commitments in 2022, the combined company’s capital allocation in 2023 onwards will prioritize: (i) balance sheet strength; (ii) sustainable shareholder returns; and (iii) disciplined growth focused on full-cycle earnings.

 

•

Commitment to Sustainability:

 

○

Aligns strong cultures emphasizing the health and safety of our global workforce and corporate citizenship.

 

○

Global coverage enhances the ability to deliver sustainable natural gas, water, and energy transition solutions, including carbon capture utilization and sequestration, biofuels (including renewable natural gas), produced water reuse and recycling, and electrification.

Consideration of Alternatives

The Enerflex Board carefully considered current industry, economic and market conditions and outlooks, including prevailing commodity prices and their expectations of the future prospects of the businesses in which Enerflex and Exterran operate, as well as the impact of the Transaction on affected shareholders. In light of the risks and potential benefits associated with Enerflex continuing to execute its business and strategic plan as a standalone entity, as opposed to the Transaction or other potential transactions which may offer increased shareholder value, the Enerflex Board determined that the combined company would be better positioned to pursue a value maximizing strategy as a result of the anticipated benefits of the Transaction.

 

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Proven Leadership Team

Executive management of Enerflex following the completion of the Transaction will continue to be led by current Enerflex management including Marc Rossiter, as Chief Executive Officer, and Sanjay Bishnoi, as Chief Financial Officer. One Exterran director will also be appointed to the combined company’s board of directors at Closing.

Supporting Exterran Shareholder Support

All of the funds managed by Chai Trust that own Exterran Common Stock holding an aggregate of 8,157,415 shares of Exterran Common Stock (24.5% of the issued and outstanding Exterran Common Stock as of the date hereof) and all of Exterran’s directors and executive officers holding an aggregate of 1,326,726 shares of Exterran Common Stock (3.98% of the 33,313,473 shares of Exterran Common Stock issued and outstanding as of the date hereof) have entered into voting agreements with Enerflex pursuant to which they have agreed to vote their respective shares in favour of the Exterran Stockholder Meeting Proposals.

Tax Considerations

The issuance of Enerflex Common Shares to holders of Exterran Common Stock in connection with the Transaction is not expected to result in a taxable event for Enerflex’s Shareholders for Canadian income tax purposes.

Termination Protections

The Merger Agreement contains adequate termination protections, including:

 

•

The fact that the Exterran has agreed to pay a termination fee of $10.0 million to Enerflex less any amounts required to be withheld or deducted on account of taxes, if Enerflex terminates the Merger Agreement due to the Exterran Board making a change of recommendation or if Exterran terminates the Merger Agreement to enter into a definitive agreement providing for an Exterran Superior Proposal.

 

•

The fact that the Enerflex Board, subject to certain conditions and the potential payment of a termination fee of $20.0 million, less any amounts required to be withheld or deducted on account of taxes, has the right to change its recommendation in support of the Transaction in response to specified events, even if there is no competing or Enerflex Superior Proposal, if the Enerflex Board determines that the failure to take such action would likely be inconsistent with its fiduciary duties.

 

•

The fact that the Enerflex Board has the right to terminate the Merger Agreement to enter into a definitive agreement related to an Enerflex Superior Proposal, subject to giving Exterran notice and an opportunity to propose changes to the Merger Agreement, and the payment of a termination fee of $20.0 million, less any amounts required to be withheld or deducted on account of taxes, in the event of actual termination.

 

•

The fact that the Merger Agreement may be terminated, subject to payment of a termination fee of $30.0 million to Exterran less any amounts required to be withheld or deducted on account of taxes, if Exterran terminates the Merger Agreement in connection with Enerflex’s failure to secure all, or any portion of, the Debt Financing to be funded at Closing for any reason and that the Merger Agreement contains no financing condition.

After consideration of these factors, the Enerflex Board determined that, overall, the potential benefits of the Transaction outweighed the potential risks.

The foregoing discussion of factors considered by the Enerflex Board is not intended to be exhaustive and may not include all the factors considered by the Enerflex Board. In view of the wide variety of factors considered in connection with its evaluation of the Transaction and the complexity of these matters, the Enerflex Board did not attempt to quantify, rank or otherwise assign any relative or specific weights to the factors that it considered in reaching its determination to approve the Merger Agreement. In addition, individual members of the Enerflex Board may have given differing weights to different factors. The Enerflex Board conducted an overall review of the factors described above and other material factors, including through discussions with, and inquiry of, Enerflex’s management and outside legal and financial advisors.

The foregoing description of Enerflex’s consideration of the factors supporting the Transaction is forward-looking in nature. This information should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements”.

In connection with its deliberations relating to the Transaction, the Enerflex Board also considered potential risks and negative factors concerning the transactions contemplated by the Merger Agreement (which are not necessarily presented in order of relative importance), including the following:

 

•

the risk that the Exterran Stockholders may not approve the Exterran Merger Proposal or that Enerflex Shareholders may not approve the issuance of Enerflex Common Shares to Exterran Stockholders in connection with the Transaction and the risk that the Transaction might not close in a timely manner or at all, despite Enerflex’s efforts;

 

•

the effect that the length of time from announcement until closing of the Transaction could have on the market price of Enerflex Common Shares, Enerflex’s operating results (particularly in light of the significant costs incurred in connection

 

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with the Transaction) and the relationships with Enerflex’s employees, Enerflex Shareholders, customers, suppliers, regulators, partners and others that do business with Enerflex;

 

•

the risk that the anticipated benefits of the Transaction will not be realized in full or in part, including the risk that expected synergies will not be achieved or will not be achieved in the expected time frame;

 

•

the risk that regulatory authorities may not approve the Transaction or may impose burdensome terms or conditions, giving rise to increased pre-tax transaction costs, and the risk that divestitures or other accommodations required by competent authorities under Antitrust Laws may decrease or eliminate the anticipated strategic and other benefits of the Transaction to Enerflex;

 

•

the risk of diverting the attention of Enerflex’s senior management from other strategic priorities to implement the Transaction and make arrangements for integration of Enerflex’s and Exterran’s operations and infrastructure;

 

•

certain restrictions on the conduct of Enerflex’s business during the pendency of the Transaction, including restrictions on Enerflex’s ability to solicit alternative business combination transactions, although the Enerflex Board believed that such restrictions were reasonable;

 

•

the obligation of Enerflex to pay to Exterran a termination payment of either $20.0 million or $30.0 million to Exterran, less any amounts required to be withheld or deducted on account of taxes and depending on the reason for the termination;

 

•

the Exchange Ratio is fixed and will not be adjusted in the event that the market price of Enerflex Common Shares increases relative to the market price of shares of Exterran Common Stock between the date of the Merger Agreement and the closing of the Transaction;

 

•

the potential impact on the market price of Enerflex Common Shares as a result of the issuance of the Merger Consideration to Exterran Stockholders;

 

•

the ownership dilution to pre-merger holders of Enerflex Common Shares as a result of the issuance of Enerflex Common Shares in connection with the Transaction;

 

•

the risks associated with the occurrence of events that may materially and adversely affect the financial condition, properties, assets, liabilities, business or results of operations of Exterran and/or its Subsidiaries but not entitle Enerflex to terminate the Merger Agreement; and

 

•

the risks described in the section entitled “Risk Factors”.

After consideration of these factors, the Enerflex Board determined that, overall, the potential benefits of the Transaction outweighed the potential risks.

The foregoing discussion of factors considered by the Enerflex Board is not intended to be exhaustive and may not include all the factors considered by the Enerflex Board. In view of the wide variety of factors considered in connection with its evaluation of the Transaction and the complexity of these matters, the Enerflex Board did not attempt to quantify, rank or otherwise assign any relative or specific weights to the factors that it considered in reaching its determination to approve the Merger Agreement. In addition, individual members of the Enerflex Board may have given differing weights to different factors. The Enerflex Board conducted an overall review of the factors described above and other material factors, including through discussions with, and inquiry of, Enerflex’s management and outside legal and financial advisors.

The foregoing description of Enerflex’s consideration of the factors supporting the Transaction is forward-looking in nature. This information should be read in light of the factors discussed in the section entitled “Information Contained in Management Information Circular – Cautionary Statement Regarding Forward-Looking Statements”.

Recommendation of the Enerflex Board

At its meeting held on January 23, 2022 after due consideration and extensive consultation with Enerflex’s management and outside legal and financial advisors to Enerflex and the Enerflex Board, and following review and consideration of, among other things, the RBC Fairness Opinion, the Enerflex Board unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement and authorized the issuance of Enerflex Common Shares under the Merger Agreement. In doing so, the Enerflex Board considered a number of factors, including, but not limited to, the factors described in the section entitled “The Transaction – Enerflex’s Reasons for the Transaction”, with a view to the best interests of Enerflex.

On September 8, 2022 after considering such additional matters as it considered appropriate in the circumstances, as more particularly described in the section entitled “The Transaction – Background of the Transaction – Events Subsequent to the Execution of the Merger Agreement”, the Enerflex Board unanimously determined to approve this Management Information Circular, including the recommendation that Enerflex Shareholders vote for the Share Issuance Resolution. See the section entitled “The Transaction – Background of the Transaction – Events Subsequent to the Execution of the Merger Agreement” for a description of the events and the activities of the Enerflex Board subsequent to the execution of the Merger Agreement.

The Enerflex Board unanimously recommends that Enerflex Shareholders vote FOR the Share Issuance Resolution. For further information regarding Enerflex’s reasons for the Transaction, see “The Transaction – Reasons for the Transaction”.

 

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RBC Fairness Opinion

Enerflex retained RBC under the RBC Engagement Agreement dated February 16, 2021 to provide financial advisory services in connection with the Transaction. As part of its engagement, RBC was requested to provide the Enerflex Board with its opinion as to the fairness to Enerflex, from a financial point of view, of the Merger Consideration to be paid to the holders of shares of Exterran Common Stock.

The RBC Fairness Opinion stated that, based upon and subject to the assumptions, limitations, qualifications, and other matters stated therein, RBC was of the opinion that, as of January 23, 2022, the Merger Consideration to be paid to the holders of shares of Exterran Common Stock was fair, from a financial point of view, to Enerflex.

The full text of the RBC Fairness Opinion attached as “Appendix C – RBC Fairness Opinion”, sets forth, among other things, the independence of RBC, the credentials of RBC, the scope of RBC’s review in connection with the RBC Fairness Opinion, assumptions made and limitations to RBC’s review in connection with the RBC Fairness Opinion, and the approach taken by RBC in considering the fairness of the Merger Consideration from a financial point of view to Enerflex.

The RBC Fairness Opinion is not a recommendation as to how the Enerflex Shareholders should vote on the Share Issuance Resolution or any other matter. The RBC Fairness Opinion was one of a number of factors taken into consideration by the Enerflex Board in making its unanimous determination that it is in the best interests of Enerflex to enter into the Merger Agreement and to recommend that Enerflex Shareholders vote in favour of the Share Issuance Resolution. In evaluating the Transaction, the Enerflex Board considered, among other things, the advice and financial analyses provided by RBC referred to above, in addition to the RBC Fairness Opinion. In assessing the RBC Fairness Opinion, the Enerflex Board took into account that a substantial portion of the fees payable to RBC for its services are contingent upon the Closing, subject to the obligation of Enerflex to make an earlier payment to RBC in certain circumstances.

RBC was not asked to prepare and did not prepare a formal valuation of Enerflex, Exterran, or any of their securities or assets and the RBC Fairness Opinion should not be construed as such.

RBC acts as a trader and dealer, in major financial markets and, as such, may have had and may in the future have positions in the securities of one or more of Enerflex, Exterran, or any of their respective associates or Affiliates and, from time to time, may have executed or may execute transactions on behalf of one or more such parties for which RBC received or may receive compensation. As an investment dealer, RBC conducts research on securities and may, in the ordinary course of business, provide research reports and investment advice to clients on investment matters, including with respect to one or more of Enerflex, Exterran, or any of their respective associates or Affiliates or the Transaction. In addition, Royal Bank of Canada, controlling shareholder of RBC, provides banking services to Enerflex and Exterran in the normal course of business.

RBC has not been engaged to provide any financial advisory services nor has it participated in any financing involving Enerflex, Exterran, or any of their respective associates or Affiliates, within the past two years, other than the services provided under the RBC Engagement Agreement and disclosed herein. In connection with the Transaction, RBC has agreed to underwrite a fully committed U.S.$925 million unsecured bridge facility and U.S.$600 million secured revolving credit facility, which has been increased to a fully committed U.S.$700 million revolving credit facility, to Enerflex. In the past two years, RBC and its Affiliates have been engaged by Enerflex as a financial advisor in connection with a buyside advisory mandate in August 2020 that was not completed. There are no understandings, agreements or commitments between RBC and its Affiliates and Enerflex, Exterran, or any of their respective associates or Affiliates with respect to any future business dealings, other than Enerflex has agreed to appoint RBC as the left lead bookrunner on the issuance of high yield notes that would replace the U.S.$925 million unsecured bridge facility described above.

Under the terms of the RBC Engagement Agreement, Enerflex agreed to pay RBC an announcement/opinion fee payable upon the earlier of (i) public disclosure of Enerflex’s intention to pursue the Transaction, and (ii) delivery of any fairness opinion (regardless of its conclusions) to Enerflex and a success fee due and payable upon Closing. Enerflex has also agreed to reimburse RBC for certain out-of-pocket expenses and to indemnify RBC against certain liabilities that may arise in connection with its engagement.

The RBC Fairness Opinion was provided to the Enerflex Board for its use only in considering the Transaction and may not be used or relied upon by any person for any other purpose without RBC’s prior written consent, which has been obtained for the purposes of the inclusion of the Fairness Opinion in this Circular and is attached as “Appendix D – Consent of Financial Advisor”, and does not constitute a recommendation as to how the Enerflex Shareholders should vote on the Share Issuance Resolution. RBC expresses no view as to, and the RBC Fairness Opinion does not address, the underlying business decision of Enerflex to effect the Transaction or the relative merits of the Transaction as compared to any strategic alternatives that may be available to Enerflex; nor does it address any legal or regulatory matters.

The Enerflex Board urges the Enerflex Shareholders to read the RBC Fairness Opinion in its entirety. Any summary of the RBC Fairness Opinion herein is qualified in its entirety by reference to the full text of the RBC Fairness Opinion as set out in “Appendix C – RBC Fairness Opinion”.

 

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Listing of Enerflex Common Shares

Enerflex Common Shares are currently listed on the TSX under the symbol “EFX”. Exterran Common Stock is currently listed on the NYSE under the symbol “EXTN”. For information regarding prior sales and trading price and volume of Enerflex Common Shares, please see “Appendix F – Information Concerning Enerflex Ltd.”. For information regarding prior sales and trading volume of Exterran Common Stock, please see “Appendix E – Information Concerning Exterran Corporation”.

It is a condition to the completion of the Transaction that the Enerflex Common Shares issuable under the Merger Agreement be approved for listing on the NYSE or NASDAQ, subject to official notice of issuance, and conditionally approved for listing on the TSX, subject to customary listing requirements.

The TSX has conditionally approved the listing of the Aggregate Enerflex Shares, which Enerflex Common Shares have been registered in the U.S. pursuant to the Form F-4. Listing of such Enerflex Common Shares is subject to Enerflex fulfilling all of the requirements of the TSX on or before the Business Day following the Closing Date. Enerflex is required under the terms of the Merger Agreement to apply to the NYSE or NASDAQ to list the Enerflex Common Shares to be issued to Exterran Stockholders under the Merger Agreement on the NYSE or NASDAQ, which Enerflex Common Shares have been registered in the U.S. pursuant to the Form F-4. Enerflex has applied for and received conditional listing approval to list the Aggregate Enerflex Shares on the NYSE. Listing will be subject to Enerflex fulfilling all the listing requirements of the NYSE. There can be no assurance that the Aggregate Enerflex Shares will be accepted for listing on the TSX or the NYSE.

Delisting and Deregistration of Exterran Common Stock

If the Transaction closes, Exterran Common Stock will be delisted from the NYSE and deregistered under the Exchange Act, and Exterran will no longer be required to file periodic reports with the SEC with respect to Exterran Common Stock.

Exterran has agreed to cooperate with Enerflex and use its reasonable best efforts to take, or cause to be taken, all actions reasonably necessary, proper, or advisable under applicable laws and rules and policies of the NYSE and the SEC to delist the Exterran Common Stock from the NYSE and to terminate its registration under the Exchange Act as promptly as practicable after the Effective Time.

Treatment of Exterran Equity Awards

For a description of the treatment of Exterran Equity Awards under the Merger Agreement, see the section entitled “The Merger Agreement – Treatment of Exterran Equity Awards”.

Exterran Executive Matters

Exterran’s directors and executive officers have interests in the Transaction which may include, among others, the treatment of outstanding Exterran Equity Awards under the Merger Agreement, the potential payment of severance benefits and acceleration of outstanding Exterran Equity Awards upon certain terminations of employment, retention awards and rights to ongoing indemnification and insurance coverage.

Change of Control Agreements

Each executive officer of Exterran has entered into a change of control agreement (the “Change of Control Agreements”). Under the Change of Control Agreements, if an executive officer is terminated without “cause” or for “good reason” within 18 months following a change of control (referred to herein as a “qualifying termination”), the executive officer is entitled to two times the executive’s base salary (three times in the case of Andrew J. Way, Exterran’s President and Chief Executive Officer) and two times the executive’s target short-term incentive bonus (three times in the case of Mr. Way), plus a pro-rated short-term incentive bonus for the year of termination and subsidized continuation of health coverage under Consolidated Omnibus Budget Reconciliation Act for a period of 18 months (24 months in the case of Mr. Way) following a qualifying termination of employment. The cash severance payments will be paid in a lump sum within 60 days following a qualifying termination of employment. An executive officer who experiences a qualifying termination of employment will also vest in any unvested Exterran Equity Awards as of the date the qualifying termination occurs. Enerflex has acknowledged that five executive officers, Mr. Way, David A. Barta, Exterran’s Senior Vice President and Chief Financial Officer, Tara Wineinger, Exterran’s Vice President, Chief Human Resources Officer, Kelly Battle, Exterran’s Vice President, General Counsel and Corporate Secretary and Kerric Peyton, Exterran’s Senior Vice President, Health, Safety, Security & Environment, will experience a qualifying termination as of the Effective Time.

For purposes of the Change of Control Agreements, “cause” means a termination of an executive’s employment due to (a) the commission by an executive of an act of fraud, embezzlement or willful breach of a fiduciary duty to Exterran or an Affiliate (including the unauthorized disclosure of confidential or proprietary material information of Exterran or an Affiliate), (b) a conviction of an executive of (or a plea of nolo contendere to) a felony or a crime involving fraud, dishonesty or moral turpitude, (c) willful failure of an executive to follow the written directions the Enerflex Board; (d) the willful failure of an executive to render services to Exterran or an Affiliate in accordance with the executive’s employment arrangement, which failure amounts to a material neglect of

 

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the executive’s duties to Exterran or an Affiliate; or (e) the executive’s use of alcohol or illicit drugs in the workplace or otherwise in a manner that has or may reasonably be expected to have a detrimental effect on the executive’s performance, executive’s duties to Exterran, or the reputation of Exterran or any Affiliate thereof.

For purposes of the Change of Control Agreements, “good reason” means (a) a material diminution in executive’s duties or responsibilities; (b) a material reduction in executive’s base salary; (c) a material reduction in executive’s annual target short-term incentive as a percentage of base salary as in effect immediately prior to the change of control; (d) a material reduction in executive’s employee benefits (without regard to bonus compensation, if any) if such reduction results in executive receiving benefits which are, in the aggregate, materially less than the benefits received by other comparable employees of Exterran generally; or (e) the willful failure by Exterran to pay any compensation to executive when due.

Payments under each Change of Control Agreement are conditioned upon the executive officer executing a general release in favour of Exterran. In addition, pursuant to the Change of Control Agreements, any payments or benefits payable to the executive officer will be reduced to the extent that such payments or benefits would result in the imposition of excise taxes under section 4999 of the Code, unless the executive officer would be better off on an after-tax basis receiving all such payments or benefits. The Change of Control Agreements also contain (i) a confidentiality covenant and (ii) one-year post-termination non-competition and non-solicitation covenants in favour of Exterran that apply if the executive officer incurs a qualifying termination.

Indemnification and Insurance

Pursuant to the terms of the Merger Agreement, Exterran’s directors and executive officers will be entitled to certain ongoing indemnification and coverage for a period of six years following the Effective Time under directors’ and officers’ liability insurance policies from the Surviving Corporation.

Treatment of Equity Awards

Each Exterran Equity Award held by Exterran’s directors and officers that is outstanding immediately prior to the Effective Time will, at the Effective Time, be assumed by and remain at the Surviving Corporation and will be converted into an Enerflex equity award in accordance with the Merger Agreement. For a more detailed description of the treatment of Exterran Equity Awards in the Transaction, see the sections entitled “The Merger Agreement – Merger Consideration” and “The Merger Agreement – Treatment of Exterran Equity Awards”.

Exterran Stockholder Approval

Obtaining the Exterran Stockholder Approval is a condition to the respective obligations of each party to effect the Transaction. Approval of the Exterran Merger Proposal requires the affirmative vote of at least a majority of the outstanding shares of Exterran Common Stock entitled to vote on the Exterran Merger Proposal. At the Exterran Stockholder Meeting, which will be held in a virtual format via the internet on October 11, 2022 at 8:00 a.m. (Central Time), Exterran Stockholders will be asked to approve, among other things, the Exterran Merger Proposal. The Exterran Board has unanimously recommended that Exterran Stockholders vote to adopt the Merger Agreement by voting for the Exterran Merger Proposal.

The affirmative vote of the holders of a majority of the outstanding shares of Exterran Common Stock in favour of the Exterran Merger Proposal is the only vote of holders of securities of Exterran that is required to approve the Merger Agreement and the transactions contemplated thereby.

At a special meeting of the Exterran Board held on January 23 2022, the Exterran Board unanimously: (i) determined that it was in the best interests of Exterran and its stockholders, and declared it advisable, to enter into the Merger Agreement; (ii) approved the execution, delivery and performance of the Merger Agreement and the transactions contemplated by the Merger Agreement; (iii) recommended that the stockholders of Exterran adopt the Merger Agreement; and (iv) directed that the Merger Agreement be submitted to a vote at a meeting of Exterran’s Stockholders.

In connection with the Transaction and the Exterran Stockholder Meeting, Enerflex and Exterran have filed with the SEC the Proxy Statement/Prospectus.

Accounting Treatment of the Transaction

In accordance with IFRS, the Transaction will be accounted for as a business combination applying the acquisition method of accounting. Accordingly, the Merger Consideration paid by Enerflex in connection with the Transaction will be allocated to Exterran’s net assets based on their fair values as of the Closing.

Any excess of the Merger Consideration over the fair value of the identifiable assets acquired and liabilities assumed from Exterran at the respective net fair value of such assets and liabilities will be recorded as goodwill. The results of operations of Exterran will be included in Enerflex’s consolidated results of operations only for periods subsequent to the Closing.

The unaudited pro forma financial information presented in this Management Information Circular has been derived from the audited historical annual financial statements of Enerflex and Exterran as of and for the fiscal year ended December 31, 2021 and

 

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the unaudited interim financial statements of Enerflex and Exterran for the three and six month periods ended June 30, 2022. The unaudited pro forma statement of financial position as at June 30, 2022 presents the financial positions of Enerflex and Exterran giving pro forma effect to the Transaction as if these events occurred on June 30, 2022. The unaudited pro forma statement of earnings for the six month period ended June 30, 2022 and the year ended December 31, 2021 presents the results of operations of Enerflex and Exterran giving pro forma effect to the Transaction as if these events occurred on January 1, 2021.

Regulatory Approvals Required for the Transaction

As more fully described in this Management Information Circular and in the Merger Agreement, and subject to the terms and conditions of the Merger Agreement, Enerflex and Exterran have agreed to promptly obtain all Governmental Approvals required in order to consummate the Merger. Enerflex and Exterran are not currently aware of any Governmental Approvals or other material consents or filings that are required in connection with the Merger other than those described in this Management Information Circular. Enerflex and Exterran received the HSR Act Approval on March 11, 2022. Enerflex also received conditional clearance from the Nigerian antitrust authorities on April 27, 2022 with all conditions being satisfied on May 12, 2022 allowing the Transaction to proceed provided closing takes place within 12 months, and the Colombia Approval on March 7, 2022. The Aggregate Enerflex Shares were conditionally approved for listing on the NYSE on September 6, 2022, subject to official notice of issuance, and conditionally approved for listing on the TSX on September 7, 2022, subject to customary listing requirements. The Form F-4 became effective in accordance with the provisions of the Securities Act on September 8, 2022.

The expiration or early termination of the waiting period in connection with the HSR Act Approval would not preclude the Antitrust Division or the United States Federal Trade Commission/Department of Justice (“FTC”) from challenging the Merger on antitrust grounds or from seeking to preliminarily or permanently enjoin the Merger. If the Merger is not completed within 12 months after the expiration or early termination of the applicable HSR Act waiting period, Enerflex and Exterran will be required to submit a new Pre-Merger Notification and Report Form pursuant to the HSR Act to the Antitrust Division and the FTC, and a new HSR Act waiting period will have to expire or be terminated early before the Merger could be completed.

For a more detailed discussion of the regulatory approvals required to close the Transaction, see the sections entitled “The Merger Agreement – Conditions that Must be Satisfied or Waived for the Transaction to Occur” and “The Merger Agreement – Regulatory Filings and Efforts; Other Actions” and for more information regarding factors that could impact the Closing, see the section entitled “Risk Factors”.

Shareholder/Stockholder Approvals

Enerflex Shareholder Approval

The Merger is conditional upon, among other things more fully described elsewhere in this Management Information Circular, the approval of the Share Issuance Resolution by the affirmative vote of a majority of the votes cast thereon either in person or by proxy at the Enerflex Special Meeting.

At the Enerflex Special Meeting, Enerflex Shareholders will be asked to consider the Share Issuance Resolution, the full text of which is set out in “Appendix A – Resolution to be Approved at the Enerflex Special Meeting” to this Management Information Circular, subject to such amendments, variations or additions as may be approved at the Enerflex Special Meeting, approving the issuance of Enerflex Common Shares in connection with the Transaction. Approval of the Share Issuance Resolution requires the affirmative vote of a majority of the votes cast in respect of the resolution by Enerflex Shareholders present in person or represented by proxy at the Enerflex Special Meeting. If the Share Issuance Resolution does not receive the requisite approval, Enerflex and Exterran will not proceed with the Transaction.

See “General Information for the Enerflex Special Meeting – Share Issuance Resolution”.

Exterran Stockholder Approval

The approval by Exterran Stockholders of the Exterran Merger Proposal is required by section 251 of the laws of the State of Delaware and is a condition to the Closing.

Approval of the Exterran Merger Proposal requires the affirmative vote of a majority of the shares of Exterran Common Stock outstanding as of the close of business on the Record Date and entitled to vote on the Exterran Merger Proposal (assuming a quorum is present). Abstentions will have the same effect as a vote “AGAINST” the Exterran Merger Proposal.

See “The Transaction – The Exterran Stockholder Meeting and Stockholder Approval”.

THE MERGER AGREEMENT

The summary of the material provisions of the Merger Agreement below and elsewhere in this Management Information Circular is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is attached to this Management Information Circular as “Appendix B – Merger Agreement” and is incorporated by reference into this Management Information

 

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Circular. This summary does not purport to be complete and may not provide all of the information about the Merger Agreement that might be important to you. You are urged to read the Merger Agreement carefully and in its entirety because it is the legal document that governs the Transactions described in this Management Information Circular.

Explanatory Note Regarding the Merger Agreement and the Summary of the Merger Agreement

The Merger Agreement and the summary of its terms in this Management Information Circular are included solely to provide you with information about the terms and conditions of the Merger Agreement. The terms and information in the Merger Agreement are not intended to provide any other public disclosure of factual information about Enerflex, Exterran, and/or Merger Sub or any of their respective Subsidiaries or Affiliates. The representations, warranties and covenants made in the Merger Agreement by Enerflex, Exterran, and Merger Sub were made solely for the purposes of the Merger Agreement and as of specific dates and are qualified and subject to important limitations and exceptions agreed to by Enerflex, Exterran, and Merger Sub in connection with negotiating the terms of the Merger Agreement. In particular, in your review of the representations and warranties contained in the Merger Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purpose of establishing the circumstances in which a party to the Merger Agreement may have the right to not complete the Transaction if the representations and warranties of the other party prove to be untrue or incorrect, and allocating risk between the parties to the Merger Agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality or Material Adverse Effect different from those generally applicable to shareholders and reports and documents filed with the SEC or on SEDAR, are qualified by certain matters contained in certain reports publicly filed with the SEC and on SEDAR, and in some cases were qualified by the matters contained in the respective confidential disclosure schedules that Enerflex and Exterran delivered to each other in connection with the Merger Agreement, which disclosures were not included in the Merger Agreement attached to this Management Information Circular as “Appendix B – Merger Agreement”. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this Management Information Circular, may have changed since the date of the Merger Agreement, which subsequent information may or may not be fully reflected in Exterran’s or Enerflex’s public disclosures. Investors are not third-party beneficiaries under the Merger Agreement except for the limited purposes expressly set forth therein and should not rely on the representations and warranties or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective Subsidiaries or Affiliates.

Accordingly, the representations and warranties and other provisions of the Merger Agreement should not be read alone, but instead should be read together with the information provided elsewhere in this Management Information Circular, the documents incorporated by reference into this Management Information Circular, and reports, statements and filings that Exterran files with the SEC and Enerflex files on SEDAR from time to time. For more information, see “Information Contained in Management Information Circular – Information Incorporated by Reference”.

Structure, Closing and Effectiveness of the Merger

The Merger Agreement provides, among other things, that, upon the terms and subject to the satisfaction or waiver of the conditions set forth therein, at the Effective Time, Merger Sub will merge with and into Exterran, with the Surviving Corporation becoming a direct wholly-owned Subsidiary of Enerflex. The Closing will occur at 10:30 a.m., Central time, or remotely by exchange of documents and signatures (or their electronic counterparts) on the second Business Day after all of the closing conditions set forth in the Merger Agreement are satisfied or waived, to the extent permitted by applicable law, (other than those conditions that by their nature are to be satisfied at the Closing, but subject to satisfaction or waiver of those conditions), or at such other time as Enerflex and Exterran may agree in writing, provided, that, if the Marketing Period (as defined in the Merger Agreement) has not ended at the time of the satisfaction or waiver of the closing conditions set forth in the Merger Agreement, then the Closing will take place instead on the earlier to occur of (x) any Business Day to be specified by Enerflex to Exterran on no less than two (2) Business Days’ written notice to Exterran and (y) the next Business Day after the last day of the marketing period, but in each case subject to the satisfaction or waiver of the closing conditions (other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or, to the extent permissible, waiver of those conditions at the Closing). In no event will the closing date of the Transaction be prior to May 4, 2022. For more information, see the section entitled “The Merger Agreement—Conditions that must be Satisfied or Waived for the Merger to Occur”. The Merger will become effective when the certificate of merger has been duly filed with the Secretary of State of the State of Delaware or at such later time as agreed by the parties to be specified in such certificate of merger.

Effects of the Merger

Merger

The Merger Agreement provides that directors of Merger Sub as of immediately prior to the Effective Time will serve as the directors of the Surviving Corporation as of the Effective Time, the officers of Merger Sub as of immediately prior to the Effective Time will serve as the officers of the Surviving Corporation as of the Effective Time, the certificate of incorporation of Merger Sub as in effect immediately prior to the Effective Time will be the certificate of incorporation of the Surviving Corporation following the Effective Time, and the by-laws of Merger Sub as in effect immediately prior to the Effective Time will be the by-laws of the Surviving Corporation following the Effective Time, until amended in accordance with DGCL and such bylaws.

 

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Pre-Closing Date Governance and Other Matters

Prior to the Closing Date, Enerflex will take all actions necessary first, to designate and appoint one director of Exterran as of immediately prior to the Effective Time to serve as a director on the Enerflex Board as of the Effective Time, until such director’s successor is elected and qualified or such director’s earlier death, resignation or removal; and second, so that the Enerflex Board will consist of no more than 12 directors following such appointment. Following the Effective Time, Enerflex will take all actions necessary to cause the Exterran designated director to be nominated for election so that such director has the opportunity to be on the Enerflex Board for at least one year following the Effective Time.

Merger Consideration

Under the Merger Agreement, at the Effective Time, each share of Exterran Common Stock that is outstanding immediately prior to the Effective Time (other than certain excluded shares as described in the Merger Agreement) will be automatically converted into the right to receive 1.021 Enerflex Common Shares, subject to the description below regarding fractional shares and dividends or distributions.

The Merger Consideration will be equitably adjusted, without duplication, in the event of any stock dividend, subdivision, reorganization, reclassification, recapitalization, stock split, reverse stock split, combination or exchange of shares involving Exterran Common Stock or Enerflex Common Shares prior to the Effective Time, to proportionally reflect such change.

No Fractional Shares

No fractional Enerflex Common Shares will be issued in connection with the Merger and no certificates or scrip representing fractional Enerflex Common Shares will be delivered on the conversion of shares of Exterran Common Stock. Each holder of shares of Exterran Common Stock who would otherwise have been entitled to receive as a result of the Merger a fraction of an Enerflex Common Share (after aggregating all shares represented by the certificates and book-entry shares delivered by such holder) will receive, in lieu of such fractional Enerflex Common Share, cash (without interest) in an amount (rounded to the nearest cent) representing such holder’s proportionate interest in the net proceeds from the sale by the Exchange Agent, on behalf of all such holders, of the aggregated number of fractional Enerflex Common Shares that would otherwise have been issuable to such holders as part of the Merger Consideration (which we refer to as the “fractional share cash amount”). As soon as practicable after the Effective Time, the Exchange Agent will, on behalf of all such holders of fractional Enerflex Common Shares, effect the sale of all such Enerflex Common Shares that would otherwise have been issuable as part of the Merger Consideration at the then-prevailing prices on the NYSE, or the TSX. After the proceeds of such sale have been received, the Exchange Agent will determine the applicable fractional share cash amount payable to each applicable holder and will make such amounts available to such holders in accordance with the Merger Agreement. The payment of cash in lieu of fractional Enerflex Common Shares to such holders is not separately bargained-for consideration and solely represents a mechanical rounding off for purposes of avoiding the expense and inconvenience that would otherwise be caused by the issuance of fractional shares. No such holder will be entitled to dividends, voting rights or any other rights in respect of any fractional Enerflex Common Share that would otherwise have been issuable as part of the Merger Consideration.

Issuance of Compensatory Shares

In order to compensate Enerflex for the issuance by Enerflex of the Enerflex Common Shares required to be issued pursuant to the Merger, the Surviving Corporation will issue to Enerflex a number of shares of common stock of the Surviving Corporation equal to the number of shares of Exterran Common Stock cancelled in exchange for the right to receive the Merger Consideration under the Merger Agreement.

No Appraisal Rights

Because Exterran Common Stock will be listed on the NYSE as of the record date for the Exterran Stockholder Meeting and Exterran Stockholders are solely receiving Enerflex Common Shares (and such shares must be listed on NYSE or NASDAQ as a condition to the Merger) and cash in lieu of fractions thereof as Merger Consideration in exchange for their Exterran Common Stock, no appraisal rights are available under section 262 of the DGCL with respect to the Merger or the other transactions contemplated by the Merger Agreement.

Surrender of Exterran Common Stock

Prior to the Effective Time, Enerflex will, on behalf of Merger Sub, deposit or cause to be deposited with the Exchange Agent in trust for the benefit of holders of shares of Exterran Common Stock, evidence of Enerflex Common Shares in book-entry form representing the number of Enerflex Common Shares sufficient to deliver the aggregate Merger Consideration deliverable in respect of Exterran Common Stock. Enerflex will deposit or cause to be deposited with the Exchange Agent from time to time, as needed, cash sufficient to pay any dividends and other distributions pursuant to the Merger Agreement.

As soon as reasonably practicable after the Effective Time and not later than five (5) Business Days following the Effective Time, Enerflex will cause the Exchange Agent to mail to each holder of record of shares of Exterran Common Stock whose shares were converted into the right to receive the Merger Consideration, a letter of transmittal with respect to book-entry shares (to the extent applicable) and certificates, and instructions for use in effecting the surrender of book-entry shares or certificates in exchange for the Merger Consideration.

 

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On the surrender of certificates (or effective affidavits of loss in lieu of a certificate) or book-entry shares to the Exchange Agent, together with a duly completed and validly executed letter of transmittal, or, in the case of book- entry shares, receipt of an “agent’s message” by the Exchange Agent, and such other documents as may customarily be required by the Exchange Agent, the holder of such certificates (or effective affidavits of loss in lieu thereof) or book-entry shares will be entitled to receive in exchange the Merger Consideration, together with any fractional share cash amount and any dividends or other distributions payable with respect to such shares following the Effective Time. No interest will be paid or accrued on any amount payable on due surrender of certificates (or effective affidavits of loss in lieu thereof) or book-entry shares. If payment of the Merger Consideration is to be made to a person other than the person in whose name the surrendered certificate is registered, it will be a condition precedent of payment that (A) the certificate so surrendered will be properly endorsed or will be otherwise in proper form for transfer and (B) the person requesting such payment will have paid any transfer and other similar taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder of the certificate surrendered or will have established that such tax either has been paid or is not required to be paid.

In the case of any certificate that has been lost, stolen or destroyed, on the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed and, if required by the Exchange Agent, the posting by such person of a bond in customary amount as indemnity against any claim that may be made against it with respect to such certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed certificate the Merger Consideration (together with the fractional share cash amount and any dividends or other distributions deliverable with respect to such shares following the Effective Time) payable with respect to the shares of Exterran Common Stock represented by such lost, stolen or destroyed certificate.

Withholding

The parties and any other Person that has any withholding obligation with respect to any payment made pursuant to the Merger Agreement will be entitled to deduct and withhold, or cause the Exchange Agent to deduct and withhold, from any payment such amounts as are required to be withheld or deducted under the Code, or under any provision of state, local or non-U.S. Tax Law (as defined in the Merger Agreement) with respect to the making of such payment. The parties will use reasonable best efforts to reduce or eliminate withholding tax in connection with any payment made pursuant to the Merger Agreement to the extent permitted by applicable law.

Treatment of Exterran Equity Awards

Exterran Restricted Share Awards

Each award of shares of Exterran Common Stock granted subject to any vesting, forfeiture or other lapse restrictions, or, Exterran Restricted Share Award, that is outstanding immediately prior to the Effective Time, will, at the Effective Time, be assumed by and remain at the Surviving Corporation and will be converted into an Enerflex Restricted Share Award in respect of that number of Enerflex Common Shares (rounded to the nearest whole common share) equal to the product of (i) the number of shares of Exterran Common Stock subject to such Exterran Restricted Share Award immediately prior to the Effective Time multiplied by (ii) the Exchange Ratio. Except as otherwise provided for in the Merger Agreement, each such Enerflex Restricted Share Award will be subject to the same terms and conditions (including settlement terms) as applied to the corresponding Exterran Restricted Share Award immediately prior to the Effective Time.

Exterran RSU Award

Each award of restricted stock units in respect of shares of Exterran Common Stock (excluding Exterran Performance Share Awards described below in respect of Exterran RSU Awards, whether payable in whole or in part in shares of Exterran Common Stock or cash), or Exterran RSU Award, that is outstanding immediately prior to the Effective Time will, at the Effective Time, be assumed by and remain at the Surviving Corporation and will be converted into an Enerflex restricted stock unit award, or Enerflex RSU Award, in respect of that number of Enerflex Common Shares (rounded to the nearest whole common share) equal to the product of (i) the number of shares of Exterran Common Stock subject to such Exterran RSU Award immediately prior to the Effective Time multiplied by (ii) the Exchange Ratio. Except as otherwise provided in the Merger Agreement, each such Enerflex RSU Award will be subject to the same terms and conditions (including settlement terms) as applied to the corresponding Exterran RSU Award immediately prior to the Effective Time.

Exterran Performance Share Awards

Each Exterran Performance Share Award, that is outstanding immediately prior to the Effective Time will, at the Effective Time, be assumed by and remain at the Surviving Corporation and will be converted into an Enerflex RSU Award in respect of that number of Enerflex Common Shares (rounded to the nearest whole common share) equal to the product of (i) the number of shares of Exterran Common Stock subject to such Exterran Performance Share Award immediately prior to the Effective Time multiplied by (ii) the Exchange Ratio. To the extent there is a performance period that is incomplete (or that is complete but for which performance is not determinable due to the unavailability of the required data for relative measures) as of the Effective Time, it will be determined as if performance had been achieved at the target level, being 100%. After the Effective Time, each such Enerflex RSU Award granted pursuant to the Merger Agreement will be scheduled to vest, subject to the holder’s continued service with the Surviving Corporation or its Subsidiaries, on the last day of the originally scheduled performance period for the corresponding

 

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Exterran Performance Share Award. Except as provided in the Merger Agreement, each such Enerflex RSU Award will be subject to the same terms and conditions (including settlement terms) as applied to the corresponding Exterran Performance Share Award immediately prior to the Effective Time.

Conditions that Must be Satisfied or Waived for the Merger to Occur

Mutual Conditions to Completion

The respective obligations of each party to effect the Transaction are subject to the satisfaction or waiver by Enerflex and Exterran at or prior to the Closing of the following conditions:

 

•

the affirmative vote of the holders of a majority of the outstanding shares of Exterran Common Stock in favour of the Exterran Merger Proposal;

 

•

the affirmative vote of a majority of the votes cast by the holders of outstanding Enerflex Common Shares represented in person or by proxy at the Enerflex Special Meeting and entitled to vote on such matter in favour of the Share Issuance Resolution;

 

•

the Form F-4 having become effective in accordance with the provisions of the Securities Act and no stop order suspending the effectiveness of the Form F-4 having been issued and remaining in effect and no proceeding to that effect having been commenced, unless subsequently withdrawn;

 

•

no Governmental Entity of competent jurisdiction having enacted, issued or promulgated any law that remains in effect that prohibits or makes illegal the consummation of the Transaction;

 

•

the Required Antitrust Approvals having been obtained from the antitrust authorities with respect to the Transactions contemplated by the Merger Agreement, or shall be deemed obtained as a result of the expiration of all statutory waiting periods, as required; and

 

•

the Enerflex Common Shares to be issued to Exterran Stockholders pursuant to the Merger Agreement having been conditionally approved for listing on the NYSE or NASDAQ, subject to official notice of issuance, and the TSX, subject to customary listing requirements.

Conditions to the Obligations of Exterran

The obligation of Exterran to effect the Transaction is also subject to the satisfaction or waiver by Exterran of the following conditions:

 

•

certain representations and warranties of Enerflex and Merger Sub in the Merger Agreement relating to the absence of certain changes or events that would have a Material Adverse Effect of Enerflex being true and correct in all respects, as of the date of the Merger Agreement and as of the closing date of the Transaction as though made as of such date;

 

•

certain representations and warranties of Enerflex and Merger Sub in the Merger Agreement relating to the capitalization of Enerflex being true and correct in all respects, each as of the date of the Merger Agreement and as of the closing date of the Transaction as though made as of such date (except to the extent expressly made as of an earlier date, in which case, as of such date), except for de minimis inaccuracies;

 

•

certain representations and warranties of Enerflex and Merger Sub in the Merger Agreement relating to the qualification, organization, existence and good standing of Enerflex and Merger Sub, the requisite power and authority of Enerflex and Merger Sub to enter into the Merger Agreement, the proper authorization by the board of Enerflex and the board and the sole stockholder of Merger Sub to approve the Merger Agreement and related matters and resolving to recommend that Enerflex Shareholders adopt the Merger Agreement, the Merger and other transactions contemplated do not conflict with Enerflex’s organizational documents, and no finders or brokers being true and correct in all material respects, each as of the date of the Merger Agreement and as of the closing date of the Transaction as though made as of such date (except to the extent expressly made as of an earlier date, in which case, as of such date);

 

•

all other representations and warranties of Enerflex and Merger Sub in the Merger Agreement being true and correct as of the date of the Merger Agreement and as of the closing date of the Transaction as though made as of such date (except to the extent expressly made as of an earlier date, in which case, as of such date), except where the failure of such representations and warranties to be true or correct, individually or in the aggregate, would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Enerflex, provided that for the purposes of this section, all representations and warranties will be read without giving effect to any limitation indicated by the words Material Adverse Effect or any general materiality qualifier;

 

•

Enerflex and Merger Sub having performed in all material respects all obligations and complied in all material respects with all covenants and agreements required by the Merger Agreement to be performed or complied with by them prior to the Closing;

 

•

no event, change, occurrence, effect or development having occurred since January 24, 2022, that has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Enerflex; and

 

•

Exterran’s receipt of a certificate, dated as of the closing date of the Transaction and executed by the chief executive officer or another senior officer of Enerflex, certifying to the effect that the conditions set forth in the bullets directly above have been satisfied.

 

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Conditions to the Obligations of Enerflex and Merger Sub

The obligations of Enerflex and Merger Sub to effect the Transaction are also subject to the satisfaction or waiver by Enerflex of the following conditions:

 

•

certain representations and warranties of Exterran in the Merger Agreement relating to the absence of certain changes or events that would have a Material Adverse Effect being true and correct in all respects, as of the date of the Merger Agreement and as of the closing date of the Transaction as though made as of such date;

 

•

certain representations and warranties of Exterran in the Merger Agreement relating to the capitalization of Exterran being true and correct as of the date of the Merger Agreement and as of the closing date of the Transaction as though made as of such date (except to the extent expressly made as of an earlier date, in which case, as of such date), except for de minimis inaccuracies;

 

•

certain representations and warranties of Exterran in the Merger Agreement relating to the qualification, organization, existence and good standing of Exterran, the proper issuance under applicable securities laws for the outstanding capital stock of Exterran, the requisite power and authority of Exterran to enter into the Merger Agreement, the proper authorization by the Exterran Board to approve the Merger Agreement and related matters and resolving to recommend that Exterran Stockholders adopt the Merger Agreement, the Merger and other transactions contemplated do not conflict with Exterran’s organizational documents, and no finders or brokers being true and correct in all material respects, each as of the date of the Merger Agreement and as of the closing date of the Transaction as though made as of such date (except to the extent expressly made as of an earlier date, in which case, as of such date);

 

•

all other representations and warranties of Exterran in the Merger Agreement being true and correct as of the date of the Merger Agreement and as of the closing date of the Transaction as though made as of such date (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be true or correct would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Exterran, provided that for the purposes of this section, all representations and warranties will be read without giving effect to any limitation indicated by the words Material Adverse Effect or any general materiality qualifier;

 

•

Exterran having performed in all material respects all obligations and complied in all material respects with all covenants and agreements required by the Merger Agreement to be performed or complied with by it prior to the Closing;

 

•

no event, change, occurrence, effect or development having occurred since January 24, 2022, that has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Exterran; and

 

•

Enerflex’s receipt of a certificate, dated as of the closing date of the Transaction and executed by the chief executive officer or another senior officer of Exterran, certifying to the effect that the conditions set forth in the bullets directly above have been satisfied.

Frustration of Closing Conditions

None of Enerflex, Merger Sub or Exterran may rely on the failure of any condition described above and in section 6.1, section 6.2 or section 6.3 of the Merger Agreement to be satisfied as a basis for not consummating the Transaction or for terminating the Merger Agreement and abandoning the Transaction if such failure was caused by such party’s material breach of any covenant or agreement of the Merger Agreement.

Representations and Warranties

The Merger Agreement contains a number of representations and warranties made by each of Exterran, Enerflex and Merger Sub solely for the benefit of Enerflex and Merger Sub, on the one hand, or Exterran, on the other hand, that are subject in some cases to important exceptions and qualifications including, among other things, as to materiality and Material Adverse Effect. Furthermore, the assertions embodied in those representations and warranties are qualified by information in Exterran’s and Enerflex’s respective public filings and in the confidential disclosure schedules that the parties have exchanged in connection with signing the Merger Agreement, which disclosure schedules are not reflected in the Merger Agreement and will not otherwise be publicly disclosed. The confidential disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement. For more information, see “The Merger Agreement—Material Adverse Effect” for a definition of Material Adverse Effect applicable to each of Exterran and Enerflex. The representations and warranties were used for the purpose of allocation of risk between the parties to the Merger Agreement rather than establishing matters of fact. For the foregoing reasons, these descriptions, representations and warranties should not be read alone.

The representations and warranties of Exterran, Enerflex and Merger Sub in the Merger Agreement relate to, among other things:

 

•

due organization, valid existence, good standing, corporate power and authority, qualification to do business, organizational documents and with respect to Exterran and Enerflex, ownership of their respective Subsidiaries;

 

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capital structure, including in particular the number of shares, shares of capital stock, and equity-based awards issued and outstanding or reserved for issuance and the absence of certain outstanding debt and securities;

 

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•

corporate power and authority to enter into the Merger Agreement and to complete the Transactions contemplated by the Merger Agreement, board recommendations, requisite stockholder/shareholder approvals and the enforceability of the Merger Agreement;

 

•

absence of any consents and approvals relating to the execution, delivery and performance of the Merger Agreement, other than certain listed required filings with, and the consents and approvals of, government entities in connection with the Transactions contemplated by the Merger Agreement;

 

•

absence of conflicts with or breaches of its or its Subsidiaries’ governing documents, certain contracts or applicable laws as a result of the execution, delivery and performance of the Merger Agreement and the completion of the Transactions contemplated by the Merger Agreement;

 

•

timely and materially compliant historical filings with the SEC pursuant to the Exchange Act or Securities Act with respect to Exterran and with applicable Canadian Securities Administrators with respect to Enerflex;

 

•

compliance with the applicable listing and corporate governance rules and regulations of the NYSE with respect to Exterran, and the TSX with respect to Enerflex;

 

•

disclosure controls and procedures and internal controls over financial reporting;

 

•

preparation of financial statements in compliance with U.S. GAAP or IFRS, as applicable;

 

•

fair presentation of consolidated financial position in financial statements;

 

•

no undisclosed liabilities;

 

•

compliance with laws since December 31, 2018, and possession of requisite permits and absence of any violation of any Law or permits;

 

•

compliance with anti-corruption, anti-bribery and anti-money-laundering laws and export and sanctions regulations in the past five (5) years and institution of compliance policies since December 31, 2018;

 

•

environmental matters;

 

•

matters related to employee benefit plans, and labor and employment;

 

•

the absence of any event, change, occurrence or development that has had or would reasonably be expected to have a Material Adverse Effect, individually or in the aggregate, on Exterran or Enerflex, as applicable, since December 31, 2020;

 

•

the absence of certain investigations, litigation, orders and injunctions;

 

•

accuracy of the information supplied for inclusion in the Form F-4 and in this Management Information Circular;

 

•

tax matters;

 

•

receipt of fairness opinions of financial advisors;

 

•

required stockholder/shareholder approvals;

 

•

lack of related party transactions;

 

•

no brokers’ fees in connection with the Transactions contemplated by the Merger Agreement except as enumerated;

 

•

matters with respect to certain suppliers and customers; and

 

•

no representations or warranties other than set forth in the Merger Agreement and no reliance on forward-looking information.

The Merger Agreement also contains representations and warranties made by Exterran as to, among other things:

 

•

intellectual property, IT assets and data privacy matters;

 

•

valid title to or leasehold interests in assets and properties (including real property);

 

•

sufficient inventory of parts and materials to meet unsatisfied performance obligations backlog;

 

•

no undisclosed material contracts;

 

•

sufficiency and effect of insurance policies;

 

•

the aggregate value of assets and revenues in Canada is under certain threshold required under the Competition Act (Canada) and related regulations;

 

•

inapplicability of any anti-takeover statutes or regulations or anti-takeover provisions in Exterran’s organizational documents; and

 

•

customary nature of Exterran’s warranties; quality and workmanship of its products; no undisclosed product liability claims or non-standard product warranties or indemnities.

The Merger Agreement also contains representations and warranties made by Enerflex as to, among other things:

 

•

capitalization of Merger Sub;

 

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•

the Enerflex Common Shares to be issued as Merger Consideration pursuant to the Merger Agreement;

 

•

absence of ownership by Enerflex and Merger Sub, and their respective Subsidiaries or Affiliates, of Exterran Common Stock;

 

•

Debt Financing matters; and

 

•

solvency.

Material Adverse Effect

Specified representations and warranties in the Merger Agreement are subject to materiality or Material Adverse Effect qualifications (that is, such representations or warranties will not be deemed to be untrue or incorrect unless their failure to be true or correct, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect).

Under the Merger Agreement, a “Material Adverse Effect” with respect to Exterran or Enerflex, as applicable, is defined as an event, change, circumstance, fact, condition, occurrence, effect or development that has, or would reasonably be expected to have, a Material Adverse Effect (x) on the business, operations or condition (financial or otherwise) of such party and its Subsidiaries, taken as a whole, or (y) would or may reasonably be expected to, prevent, materially delay or materially impair the ability of (i) in the case of Exterran, Exterran, and (ii) in the case of Enerflex, Enerflex or Merger Sub, to consummate the Transactions contemplated by the Merger Agreement, but, in the case of each of clauses (x) and (y), will not include events, changes, occurrences, effects or developments relating to or resulting from:

 

•

changes in general economic or political conditions or the securities, equity, credit or financial markets in general, or changes in or affecting domestic or foreign interest or exchange rates;

 

•

any decline in the market price or trading volume of such party’s shares, or any change in the credit rating of such party or any of its securities (provided, that the facts and circumstances underlying such decline or change may be taken into account in determining whether a Material Adverse Effect in respect of such part has occurred to the extent not otherwise excluded by the definition thereof);

 

•

changes or developments in the industries in which such party or its Subsidiaries operate;

 

•

changes in law or the interpretation or enforcement thereof after the date of the Merger Agreement;

 

•

the execution, delivery or performance of the Merger Agreement or the public announcement or pendency or consummation of the Transactions contemplated thereby, including the impact thereof on the relationships of such party or any of its Subsidiaries with employees, partnerships, customers or suppliers or Governmental Entities;

 

•

compliance with the terms of, or the taking or omission of any action required by, the Merger Agreement or consented to (after disclosure to the other party of all material and relevant facts and information) or requested by such party in writing;

 

•

any act of civil unrest, civil disobedience, war, terrorism, cyberterrorism, military activity, sabotage, or cybercrime, including an outbreak or escalation of hostilities involving Canada or the U.S. as applicable and any Governmental Entity or the declaration by Canada or the U.S. as applicable or any Governmental Entity of a national emergency or war, or any worsening or escalation of any such conditions threatened or existing on the date of the Merger Agreement;

 

•

any hurricane, tornado, flood, earthquake, natural disaster, acts of God or other comparable events;

 

•

any pandemic, epidemic, or disease outbreak (including COVID-19) or other comparable events;

 

•

changes in U.S. GAAP or the enforcement thereof (in the case of Exterran) or changes in IFRS or the interpretation or enforcement thereof (in the case of Enerflex) after the date of the Merger Agreement;

 

•

any litigation relating to or resulting from the Merger Agreement or the Transactions contemplated thereby; or

 

•

any failure of such party to meet internal or published projections, forecasts, guidance or revenue or earning predictions (provided, that the facts and circumstances underlying any such failure may be taken into account in determining whether a Material Adverse Effect in respect of such party has occurred to the extent not otherwise excluded by the definition thereof); except, with respect to the first, third, fourth, seventh, eighth, ninth, and tenth bullets above, if the impact thereof is materially and disproportionately adverse to such party and its Subsidiaries, taken as a whole, relative to the impact thereof on the operations in the industry that such party and other participants conduct business, the incremental material disproportionate impact may be taken into account in determining whether there has been a Material Adverse Effect in respect of such party.

Conduct of Business Pending the Merger

Exterran

From and after the date of the Merger Agreement and prior to the earlier of the Effective Time and the termination of the Merger Agreement (which we refer to as the “interim period”), except (i) as may be required by applicable law, (ii) as may be agreed in writing by Enerflex (which consent will not be unreasonably withheld, delayed or conditioned), (iii) as may be expressly contemplated, required or expressly permitted by the Merger Agreement, or (iv) as set forth in the disclosure schedules to the Merger Agreement provided by Exterran (which we refer to as the “Exterran disclosure schedules”), Exterran will, and will cause its Subsidiaries to, use its reasonable best efforts to (A) conduct its business in the ordinary course of business and (B) preserve

 

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intact its present business organization and maintain existing relationships and goodwill with Governmental Entities, customers, suppliers, licensors, licensees, creditors, lessors, distributors, employees, contractors and business associates, in each case, with whom it and they have material business relations.

During the interim period and subject to the same exclusions as above, Exterran:

 

•

will not, and will not permit any of its Subsidiaries that is not wholly-owned to, authorize or pay any dividends on or make any distribution with respect to its outstanding shares of capital stock (other than dividends, distributions, payments or return of capital made to Exterran or a wholly-owned Subsidiary by any of its Subsidiaries) or other equity interests (whether in cash, assets, shares, property or other securities or any combination thereof);

 

•

will not, and will not permit any of its Subsidiaries to, split, combine, redeem or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, except for any such transaction by a wholly-owned Subsidiary of Exterran that remains a wholly-owned Subsidiary after consummation of such transaction;

 

•

will not, and will not permit any of its Subsidiaries to (A) except in the ordinary course of business, (i) hire any employee or engage any independent contractor who is a natural person, in each case with annual base salary, base wages or base compensation in excess of $100,000 (except where such employment is terminable on no more than 30 days’ prior notice without material cost or penalty) or (ii) terminate the employment of any employee of Exterran or any of its Subsidiaries at the vice president-level (or its equivalent) or above, (B)(i) increase the compensation or other benefits, or accelerate the vesting or payment of any compensation or other benefits, payable or provided, to Exterran’s or any of its Subsidiaries’ directors or officers or (ii) increase the compensation or other benefits, or accelerate the vesting or payment of any compensation or other benefits, payable or provided, to Exterran’s or any of its Subsidiaries’ employees, which increases do not exceed (I) 10% of the aggregate annualized compensation paid to an employee during calendar year 2021 (any such increases over 6% to be limited to non-union employees) and, (II) in the aggregate, 4.5% of total compensation for all employees (except as required pursuant to the terms of any new or amended union contract), or (C) except as required pursuant to the terms of any Exterran benefit plan in effect as of the date of the Merger Agreement, (i) grant any transaction or retention bonuses, (ii) grant any Exterran equity awards or other equity or long-term incentive compensation awards, or (iii) enter into any employment, change of control, severance or retention agreement with any employee of Exterran or any of its Subsidiaries;

 

•

will not, and will not permit any of its Subsidiaries to, change financial accounting policies or procedures or any of its methods of reporting income, deductions or other material items for financial accounting purposes, except as required by applicable law, U.S. GAAP or SEC rule or policy;

 

•

will not adopt any amendments, modifications, waivers, rescissions or otherwise make changes to the organizational documents of Exterran or any of its Subsidiaries;

 

•

will not, and will not permit any of its Subsidiaries to, issue, deliver, grant, sell, pledge, transfer, dispose, or otherwise encumber, or authorize or approve or agree to issue, grant, sell, pledge or otherwise encumber any shares of Exterran Common Stock or other securities of Exterran or any of its Subsidiaries, or securities convertible into or exchangeable or exercisable for, or otherwise evidencing a right to acquire, shares of Exterran Common Stock or other securities of Exterran or any of its Subsidiaries including but not limited to the issue or award of any Exterran equity awards or any rights, warrants or options to acquire any such shares, voting securities or equity interest or any “phantom” stock, “phantom” stock rights, stock appreciation rights or stock based performance units, except vesting in the ordinary course of business pursuant to awards under Exterran benefit plans in effect as of the date of the Merger Agreement or as disclosed on the Exterran disclosure schedules;

 

•

will not, and will not permit any of its Subsidiaries to, redeem, terminate early, unwind, repurchase, prepay, defease, create, suffer to exist, incur, enter into, assume, endorse, guarantee, or otherwise become liable for or modify or amend (including seeking or obtaining a waiver) in any material respects the terms of, any indebtedness for borrowed money, or issue or sell any debt securities or calls, options, warrants or other rights to acquire any debt securities, any indebtedness or assume, guarantee, endorse or otherwise become liable or responsible for such obligations or the obligations of any other person, or make any loans or advances, except for (A) intercompany loans or advances among Exterran and its Subsidiaries or among Exterran’s direct or indirect wholly-owned Subsidiaries in the ordinary course of business and (B) incremental borrowings under Exterran’s existing credit facility contemplated by the budget set forth in the Exterran disclosure schedules which do not require any amendments or waivers to such Credit Facility;

 

•

will not, and will not permit any of its Subsidiaries to make any loans, advances, guarantees or capital contributions to or investments in any person, except for (A) loans solely between or among Exterran or any of its wholly-owned Subsidiaries, on the one hand, and any of Exterran’s wholly-owned Subsidiaries, on the other hand, and (B) advances for reimbursable employee expenses in the ordinary course of business;

 

•

will not, and will not permit any of its Subsidiaries to, sell, lease, license, transfer, exchange or swap, or subject to any lien (other than permitted liens), or otherwise dispose of, any of its businesses, material properties or assets, whether voluntarily or by the failure to exercise a right or make a payment, except (A) dispositions of obsolete or worthless equipment, in the ordinary course of business, (B) non-exclusive licenses or other non-exclusive grants of rights in, to or under Exterran intellectual property entered in the ordinary course of business with customers of Exterran or any of its Subsidiaries (C) sales of products

 

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or services in the ordinary course of business that do not require the incurrence of indebtedness in breach of the Merger Agreement or the extension of capital in breach of the Merger Agreement and (D) for transactions solely among Exterran and its wholly-owned Subsidiaries or solely among Exterran’s wholly-owned Subsidiaries;

 

•

will not, and will not permit any of its Subsidiaries to (i) enter into any contract that would have been an Exterran material contract under the Merger Agreement if it been entered into prior to the Merger Agreement, or amend or modify any contract in a manner that would make it an Exterran material contract under the Merger Agreement, (ii) enter into any other contract that would require aggregate expenditures by Exterran or any Exterran Subsidiary in excess of the budget set forth in the Exterran disclosure schedules, (iii) materially modify, materially amend, extend, accelerate, terminate, cancel, exercise or fail to exercise an expiring renewal option or terminate any Exterran material contract (in each case, in a manner adverse to Exterran or its Subsidiaries and not including terminations or expirations due to the natural expiration or termination of such agreements) or (iv) waive, release or assign any material rights or claims thereunder (other than in the ordinary course of business or as would not result in a breach of the Merger Agreement);

 

•

will not, and will not permit any of its Subsidiaries to, acquire (including by merger, consolidation or acquisition of stock or assets or any other means) or authorize or announce an intention to so acquire, or enter into any agreements providing for any acquisitions of, directly or indirectly, any equity interests in or assets (including intangible assets) of any person or any business, division, securities, properties or interests thereof, or otherwise engage in any mergers, consolidations or business combinations (other than pursuant to any capital expenditures permitted under the Merger Agreement) from any other person, other than (A) transactions solely between Exterran and a wholly-owned Exterran Subsidiary or solely between wholly-owned Exterran Subsidiaries or acquisitions of supplies or equipment in the ordinary course of business and (B) acquisitions of properties, assets, equipment or inventory in the ordinary course of business and consistent with the budget set forth in the Exterran disclosure schedules;

 

•

will not, and will not permit any of its Subsidiaries to, settle, pay, discharge or satisfy any action, other than any action that involves only the payment of monetary damages not in excess of $250,000 individually or $1,000,000 in the aggregate over the amount reflected or reserved against in the September 30, 2021 consolidated balance sheet of Exterran for such specific actions and would not result in (A) the imposition of any order that would restrict the future activity or conduct of Exterran or any of its Subsidiaries (excluding, for the avoidance of doubt, releases of claims, confidentiality and other de minimis obligations customarily included in monetary settlements) or (B) a finding or admission of a violation of law;

 

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will not, and will not permit any of its Subsidiaries to incur or commit to capital expenditures or development expenses or expenses relating to integration of its accounting or enterprise resource planning systems, in each case, in excess of the amounts set forth in the budget set forth in the Exterran disclosure schedules;

 

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will not, and will not permit any of its Subsidiaries to, terminate or permit any material Exterran permit to lapse, other than in accordance with the terms and regular expiration thereof, or fail to apply on a timely basis for any renewal of any renewable material Exterran permit (excluding, in each case, any Exterran permit that Exterran, in its reasonable judgment, no longer believes to be material or necessary to the conduct of the business);

 

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will not, and will not permit any of its Subsidiaries to, adopt any plan of merger, consolidation, reorganization, liquidation or dissolution, adopt resolutions providing for a complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization, file a petition in bankruptcy under any provisions of federal or state bankruptcy applicable law on behalf of Exterran or any of its Subsidiaries or consent to the filing of any bankruptcy petition against Exterran or any of its Subsidiaries under applicable law;

 

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will not, and will not permit any of its Subsidiaries to, enter into any new line of business that is not reasonably related to the existing business lines of Exterran and its Subsidiaries, or abandon or discontinue any existing line of business of Exterran or its Subsidiaries;

 

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except as required by applicable law, will not (A) make (other than in the ordinary course of business), change or revoke any material tax election, (B) change any material method of tax accounting or tax accounting period, (C) file any amended tax return with respect to any material tax, (D) settle or compromise any material tax proceeding, (E) surrender any right to claim a material tax refund, or (F) agree to an extension or waiver of the statute of limitations with respect to the assessment of any material tax;

 

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will not, and will not permit any of its Subsidiaries to become a party to, establish, adopt, materially amend, commence participation in or terminate any collective bargaining agreement or other agreement with a labor union, works council or similar organization;

 

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will not, and will not permit any of its Subsidiaries to enter into any consent decree or similar agreement that, individually or in the aggregate, is material to Exterran and its Subsidiaries, taken as a whole;

 

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will not, and will not permit any of its Subsidiaries to terminate or fail to exercise renewal rights with respect to any insurance policies of Exterran and its Subsidiaries in a manner that would (after taking into account any replacement insurance policies) materially and adversely affect the insurance coverage of Exterran and its Subsidiaries;

 

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will not, and will not permit any of its Subsidiaries to, sell, transfer, lease, license, mortgage, pledge, surrender, encumber, divest, or otherwise dispose of any material Exterran intellectual property (other than permitted liens), except for non-exclusive licenses of Exterran intellectual property granted in the ordinary course of business;

 

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will not, and will not permit any of its Subsidiaries to abandon or otherwise allow to lapse or expire any registered Exterran intellectual property, other than lapses or expirations of any registered Exterran intellectual property that is at the end of its maximum statutory term (with renewals);

 

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will not, and will not permit any of its Subsidiaries to engage in any transaction with, or enter into any agreement, arrangement or understanding with, any affiliate of Exterran or other person that would be required to be disclosed pursuant to Item 404 of Regulation S-K;

 

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will not convene any special meeting (or any adjournment or postponement thereof) of the stockholders of Exterran;

 

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will not, and will not permit any of its Subsidiaries to modify, amend or replace that certain lease contract listed in the Exterran disclosure schedules; and

 

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will not, and will not permit any of its Subsidiaries to, agree, in writing or otherwise, to take any of the foregoing actions.

Nothing contained in the Merger Agreement gives Enerflex or Merger Sub, directly or indirectly, the right to control or direct Exterran or its Subsidiaries’ operations prior to the closing date of the Transaction. Prior to the closing date of the Transaction, Exterran will exercise, consistent with the terms and conditions of the Merger Agreement and subject to applicable law, complete control and supervision over its and its Subsidiaries’ operations.

Enerflex

During the interim period, except (i) as may be required by applicable law, (ii) as may be agreed in writing by Exterran (which consent will not be unreasonably withheld, delayed or conditioned), (iii) as may be expressly contemplated, required or expressly permitted by the Merger Agreement or (iv) as set forth in the disclosure schedules to the Merger Agreement provided by Enerflex (which we refer to as the “Enerflex disclosure schedules”), Enerflex will, and will cause its Subsidiaries to, use its reasonable best efforts to (A) conduct its business in the ordinary course of business and (B) preserve intact its business organization and maintain existing relationships and goodwill with Governmental Entities, customers, suppliers, licensors, licensees, creditors, lessors, distributors, employees, contractors and business associates, in each case, with whom it and they have material business relations.

During the interim period and subject to the same exclusions as above, Enerflex:

 

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will not, and will not permit any of its Subsidiaries that is not wholly-owned to, authorize or pay any dividends on or make any distribution with respect to its outstanding shares (whether in cash, assets, shares or other securities of Enerflex or its Subsidiaries), except (A) regular quarterly cash dividends paid on the Enerflex Common Shares in the ordinary course of business, appropriately adjusted to reflect any stock dividends, subdivisions, splits, combinations or other similar events relating to the Enerflex Common Shares, and (B) dividends and distributions paid by Subsidiaries of Enerflex to Enerflex or to any of Enerflex’s other wholly-owned Subsidiaries;

 

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will not, and will not permit any of its Subsidiaries to, split, combine or reclassify any of its capital or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for its shares, except for any such transaction by a wholly-owned Subsidiary of Enerflex that remains a wholly-owned Subsidiary after consummation of such transaction;

 

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will not, and will not permit any of its Subsidiaries to, issue, deliver, grant, sell, transfer, dispose, or otherwise encumber, or authorize or approve or agree to issue, grant, sell, pledge or otherwise encumber any Enerflex Common Shares or other equity securities of Enerflex, or securities convertible into or exchangeable or exercisable for, or otherwise evidencing a right to acquire, Enerflex Common Shares or other equity securities of Enerflex, including but not limited to the issue or award of any Enerflex options or any rights, warrants or options to acquire any such shares, voting equity securities or equity interest or share-based performance units, except (A) in the ordinary course of business pursuant to awards under Enerflex benefit plans in effect as of the date of the Merger Agreement or as disclosed in the Enerflex disclosure schedules or (B) pledges or encumbrances required in connection with the Debt Financing (including for the repayment or refinancing of the “Refinanced Indebtedness” (as defined in the Debt Commitment Letter) or any other repayment or refinancing contemplated thereby);

 

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will not, and will not permit any of its Subsidiaries to, materially change financial accounting policies or procedures or any of its methods of reporting income, deductions or other material items for financial accounting purposes, except as required by IFRS or rule or policy of the Canadian Securities Administrators;

 

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will not, and will not permit any of its Subsidiaries to, redeem, terminate early, unwind, repurchase, prepay, defease, create, suffer to exist, incur, enter into, assume, endorse, guarantee or otherwise become liable for or modify in any material respects the terms of any indebtedness for borrowed money, or issue or sell any debt securities or calls, options, warrants or other rights to acquire any debt securities (directly, contingently or otherwise), except for (A) any indebtedness solely among Enerflex and its wholly-owned Subsidiaries or solely among wholly-owned Enerflex Subsidiaries, (B) incremental borrowings under Enerflex’s existing credit facilities if either (i) contemplated by the budget set forth in the Enerflex disclosure schedules or (ii) not in excess of $25,000,000 greater than the amount set forth in the budget set forth in the Enerflex disclosure schedules, (C) any repayment of borrowings under Enerflex’s existing revolving credit facilities to the extent that the aggregate amount available to Enerflex and the Enerflex’s Subsidiaries for borrowings does not decrease or (D) the Debt Financing (including the guarantees to be provided for the Debt Financing) and other actions taken in furtherance of the Debt Financing (including for the repayment or refinancing of the “Refinanced Indebtedness” as defined in the Debt Commitment Letter) or any other repayment or refinancing contemplated thereby;

 

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will not adopt any amendments to the organizational documents of Enerflex;

 

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will not, and will not permit any of its Subsidiaries to, acquire (including by merger, consolidation or acquisition of stock or assets or any other means) or authorize or announce an intention to so acquire, or enter into any agreements providing for any acquisitions of, directly or indirectly, any equity interests in or assets (including intangible assets) of any person or any business, division, securities, properties or interests, or otherwise engage in any mergers, consolidations or business combinations from any other person, other than (A) transactions solely between and among wholly-owned Subsidiaries, (B) acquisitions of supplies, properties, assets, equipment or inventory in the ordinary course of business and (C) transactions that would not reasonably be expected to have a Material Adverse Effect on Enerflex’s ability to complete the Merger or the financing; and

 

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will not, and will not permit any of its Subsidiaries to, agree, in writing or otherwise, to take any of the foregoing actions.

During the interim period, Enerflex will not, and will cause its Subsidiaries not to, acquire or agree to acquire, by merging with or into or consolidating with, or by purchasing a portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets, or take any other action, if the entering into of a definitive agreement relating to, or the consummation of such acquisition, merger or consolidation, or the taking of any other action, would reasonably be expected to: (i) impose any material delay in the obtaining of, or materially increase the risk of not obtaining, any authorizations or approvals of any Governmental Entity necessary to consummate the Transactions contemplated by the Merger Agreement or the expiration or termination of any applicable waiting period; (ii) increase, in any material respect, the risk of any Governmental Entity entering an order prohibiting the consummation of the Transactions contemplated by the Merger Agreement; (iii) increase the risk, in any material respect, of not being able to remove any such order on appeal or otherwise; or (iv) prevent or materially delay the consummation of the Transactions contemplated by the Merger Agreement.

No Solicitation

Subject to the provisions in the Merger Agreement, from the date of the Merger Agreement until the earlier of the Effective Time and the termination date, Enerflex and Exterran have agreed they each will not, and they each will cause their respective Subsidiaries and their and their respective directors and officers not to, and will use reasonable best efforts to cause their other representatives, not to, directly or indirectly:

 

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solicit, initiate or knowingly encourage or knowingly facilitate any inquiry regarding, or the making or submission of any proposal, offer or indication of interest that constitutes, or would reasonably be expected to lead to, or result in, an Alternative Proposal;

 

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engage in, knowingly encourage, continue or otherwise participate in any discussions or negotiations with any Person regarding an Alternative Proposal or any communications regarding or any inquiry, proposal or offer that would reasonably be expected to lead to, or result in, an Alternative Proposal (except to notify such person that the provisions of the Merger Agreement prohibit any such discussions or negotiations);

 

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furnish any nonpublic information relating to such party or its Subsidiaries in connection with or for the purpose of facilitating an Alternative Proposal or any inquiry, proposal, offer or indication of interest that would reasonably be expected to lead to, or result in, an Alternative Proposal and request the prompt return or destruction of any confidential information provided to any third party in connection with an Alternative Proposal;

 

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recommend or enter into any other letter of intent, memorandum of understandings, agreement in principle, option agreement, acquisition agreement, Merger Agreement, joint venture agreement, partnership agreement or other similar agreement with respect to an Alternative Proposal (except for permitted confidentiality agreements as discussed below);

 

•

approve any transaction under, or any third party becoming an “interested stockholder” under section 203 of the DGCL (or similar takeover statute applicable to Enerflex under Canadian law); or

 

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adopt, approve, endorse, authorize, agree or publicly propose to adopt, approve, endorse or authorize to do any of the foregoing or otherwise knowingly facilitate any effort or attempt to make an Alternative Proposal.

Prior to the time, but not after, in the case of Exterran, the Exterran Stockholder Approval is obtained or, in the case of Enerflex, the Enerflex Shareholder Approval is obtained, in response to an unsolicited, bona fide written Alternative Proposal that did not result from such party’s breach of the non-solicitation provisions contained in the Merger Agreement (which Alternative Proposal is not withdrawn), Exterran or Enerflex, as applicable, may (including through their representatives) contact the third party making such Alternative Proposal to clarify the terms and conditions of the Alternative Proposal. If the relevant party’s board of directors determines in good faith after consultation with outside legal counsel and financial advisors that such Alternative Proposal constitutes a Superior Proposal or would reasonably be expected to result in a Superior Proposal, the following actions may be taken:

 

•

such party may furnish non-public information to the third party making such Alternative Proposal (including its representatives, including its equity and Debt Financing sources) in response to a request for such non-public information, if, and only if, (A) prior to furnishing such information, Exterran or Enerflex, as applicable, receives from the third party making such Alternative Proposal, an executed confidentiality agreement (a copy of which shall be provided to Enerflex or Exterran as applicable within 24 hours of execution) with confidentiality and use provisions that, in each case, are not less restrictive to such third party than the terms in the

 

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Confidentiality Agreement, dated as of October 3, 2021, between Exterran and Enerflex are to the other party (it being understood that such confidentiality agreement does not need to include any “standstill” or similar provisions or otherwise prohibit the making or amendment of any Alternative Proposal, but such confidentiality agreement will not grant such third party the exclusive right to negotiate with Exterran or Enerflex, as applicable); and (B) such party also provides to the other party, prior to or substantially concurrently with the time such non-public information is provided or made available to such third party, any non-public information furnished to such third party that was not previously furnished to the other party to the Merger Agreement; provided, however, that if the third party making such Alternative Proposal is a known competitor of Exterran or Enerflex, as applicable, such party will not provide any commercially sensitive non-public information to such third party in accordance with the permitted actions under the Merger Agreement, other than in accordance with customary “clean room” or other similar procedures designed to limit the disclosure of competitively sensitive information; and

 

•

such party may engage in discussions or negotiations with the third party (including its representatives) with respect to the Alternative Proposal.

Exterran and Enerflex are each required to promptly (and in any event within 24 hours) give written notice to the other party if it or its representatives receive (i) any inquiries, proposals or offers with respect to an Alternative Proposal or (ii) any request for information that, to the knowledge of such party, has been or is reasonably likely to have been made in connection with any Alternative Proposal. Such notice is required to identify the material terms and conditions of such inquiries, proposals or offers (including the name of the applicable third party and, complete copies of any written requests, proposals or offers and any other material documents, including proposed agreements). Exterran or Enerflex, as applicable, will be required to thereafter keep the other party fully informed, on a current basis, of any material developments regarding any Alternative Proposal or any material change to the terms of any Alternative Proposal and any material change to the status of any such discussions or negotiations with respect thereto.

Change of Recommendation

Except as expressly permitted by the Merger Agreement, neither party’s board of directors (including any committee) may:

 

•

withdraw, withhold, qualify or modify, or propose publicly to withdraw, withhold, qualify or modify: (i) in the case of the Exterran board, its recommendation to the Exterran Stockholders to adopt the Merger Agreement and the Transactions contemplated by the Merger Agreement (which we refer to as the “Exterran recommendation”); and (ii) in the case of the Enerflex Board, the recommendation to the Enerflex Shareholders to approve the Enerflex Common Share issuance in connection with the Merger (which we refer to as the “Enerflex recommendation”);

 

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fail to include (i) in the case of Exterran, the Exterran recommendation in the Form F-4 or (ii) in the case of Enerflex, the Enerflex recommendation in this Management Information Circular;

 

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if any Alternative Proposal that is structured as a tender offer or exchange offer for the outstanding Enerflex Common Shares or shares of Exterran Common Stock, as applicable, is commenced, in the case of Exterran, pursuant to Rule 14d-2 of the Exchange Act (other than by the other party or an affiliate of the other party), fail to recommend and publicly announce, within 10 Business Days after its commencement, against acceptance of such tender offer or exchange offer by its shareholders or stockholders, as applicable;

 

•

approve, adopt, recommend, or declare advisable any Alternative Proposal or publicly propose to approve, adopt or recommend or declare advisable any Alternative Proposal;

 

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fail to publicly reaffirm the recommendation to Exterran Stockholders or Enerflex Shareholders, as applicable, within 10 Business Days after an Alternative Proposal (or material modification thereto) is first publicly announced by such party or the person making such Alternative Proposal (or, with respect to any material amendments, revisions or changes to the terms of any such previously publicly disclosed Alternative Proposal that are publicly disclosed within the last five (5) Business Days prior to the Effective Time, fail to take these affirming actions, with references to the applicable 10 Business Day period being replaced with three (3) Business Days);

 

•

approve, adopt or recommend, or declare advisable or enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, Merger Agreement, option agreement, joint venture agreement, partnership agreement or other agreement (other than a confidentiality agreement referred to and entered into in compliance with the section of the Merger Agreement described above under the subsection entitled “No Solicitation”) with respect to any Alternative Proposal;

 

•

exempt any person other than the other party to the Merger Agreement (or in Exterran’s case, Enerflex or Merger Sub) from any takeover statute or approve or authorize, or cause or permit the other party or any of its Subsidiaries to enter into, an acquisition agreement in connection with an Alternative Proposal; or

 

•

resolve or publicly propose to take any action described in the foregoing of this section.

The taking of any of the actions set forth above will constitute a “Change of Recommendation.”

Furthermore, each of Exterran and Enerflex will (and will cause its Subsidiaries and its and their respective directors and officers to, and will use its reasonable best efforts to cause its other representatives to) promptly terminate any existing discussions and

 

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negotiations conducted prior to the date of the Merger Agreement with any person (other than Exterran, Enerflex or any of their respective Affiliates or representatives) with respect to any Alternative Proposal, or proposal or transaction that could reasonably be expected to lead to or result in an Alternative Proposal. Each of Exterran and Enerflex will promptly terminate all physical and electronic data access previously granted to such persons and request that any such persons promptly return or destroy all confidential information concerning Exterran or Enerflex, as applicable, and any of its Subsidiaries and provide prompt written confirmation thereof.

Prior to the time, in the case of Exterran, the Exterran Stockholder Approval is obtained or, in the case of Enerflex, the Enerflex Shareholder Approval is obtained, the Exterran Board or Exterran, as applicable, may:

 

•

In response to a Superior Proposal, effect a Change of Recommendation and/or, cause Exterran or Enerflex to terminate the Merger Agreement to enter into a definitive agreement providing for a Superior Proposal, if the respective board determines in good faith after consultation with the outside legal counsel and financial advisors, that such proposal is a Superior Proposal, but only if the Exterran board, or Enerflex Board, as applicable, has determined in good faith after consultation with the outside legal counsel, that the failure to make such Change of Recommendation and/or terminate the Merger Agreement to enter into such acquisition agreement providing for such Superior Proposal would breach or reasonably be expected to breach the respective boards’ fiduciary duty to the shareholders or stockholders, respectively, under applicable law; and if: (i) Exterran or Enerflex, as applicable, has given the other party written notice of its intent to take such action at least five (5) Business Days in advance, setting forth a description of the terms and conditions of the Superior Proposal that is the basis for such action (and including the identity of the person making the Superior Proposal and a copy of the proposed definitive agreement for such Superior Proposal, if any); (ii) Exterran or Enerflex, as applicable, negotiates in good faith during such five-business-day period with the other party and its representatives (to the extent such other party wishes to negotiate) to enable such other party to make such amendments to the terms of the Merger Agreement as would permit the Exterran board or the Enerflex Board, as applicable, not to effect a Change of Recommendation in connection with such Superior Proposal or not to cause the party to terminate the Merger Agreement in connection with the entry into a definitive agreement providing for a Superior Proposal; and (iii) at the end of such five-business-day period, prior to taking action to effect a Change of Recommendation or, terminating the Merger Agreement, the Exterran board or the Enerflex Board, as applicable, makes the fiduciary determination as set forth under the Merger Agreement again, and concludes that the Superior Proposal would continue to constitute a Superior Proposal if such amendments were to be given effect. For purposes of the aforementioned negotiation period, any material modification to the terms of the Superior Proposal (including any change in the amount or, if applicable, form of consideration) will be deemed to be a new Alternative Proposal, except that references to five (5) Business Days will be deemed to be references to three (3) Business Days.

 

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In response to an intervening event, effect a Change of Recommendation, if the Exterran board or the Enerflex Board, as applicable, determines in good faith, after consultation with the applicable party’s outside legal counsel, that the failure of the Exterran board or the Enerflex Board, as applicable, to take such action would breach or would reasonably be expected to breach fiduciary duties of Exterran’s or Enerflex’s board, as applicable, under applicable law provided, that the Exterran board or the Enerflex Board, as applicable, will not be entitled to make such a change in recommendation unless: (i) Exterran or Enerflex, as applicable, has given the other party written notice of its intent to take such action at least 10 Business Days in advance, setting forth in reasonable detail, the reasons for effecting a Change of Recommendation; (ii) Exterran or Enerflex, as applicable, will cause their respective representatives (including executive officers) to be available to negotiate in good faith during such ten-business-day period with the other party (to the extent such other party desires to negotiate) to enable such other party to make such amendments to the terms and conditions of the Merger Agreement as would permit the Exterran board or the Enerflex Board, as applicable, not to effect a Change of Recommendation in connection with such intervening event; and (iii) at the end of such ten-business-day period, prior to taking action to effect a Change of Recommendation, the Exterran board or the Enerflex Board, as applicable, takes into account in good faith any amendments to the Merger Agreement proposed by the other party in response to the intervening event, as applicable, during the ten-business-day period, and concludes, in good faith after consultation with its outside legal counsel, that the failure to take such action would breach or would reasonably be expected to breach such board’s fiduciary duties under applicable law.

As further described in the section below entitled “The Merger Agreement—Termination or Abandonment of the Merger Agreement,” if (i) Enerflex terminates the Merger Agreement due to the Exterran Board making a Change of Recommendation, or if Exterran terminates the Merger Agreement to enter into a definitive agreement providing for an Exterran Superior Proposal, Exterran will be required to pay Enerflex a termination payment of U.S.$10 million in cash, less any amounts required to be withheld or deducted on account of taxes and (ii) if Exterran terminates the Merger Agreement due to the Enerflex Board making a Change of Recommendation or if Enerflex terminates the Merger Agreement to enter into a definitive agreement providing for an Enerflex Superior Proposal, Enerflex will be required to pay a termination payment of U.S.$20 million in cash, less any amounts required to be withheld or deducted on account of taxes.

The Merger Agreement will not prohibit Exterran or Enerflex, or each of their board of directors or any committees, from complying with their respective disclosure obligations under applicable law, rules or policies of the NYSE or the TSX.

 

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Efforts to Obtain Required Stockholder/Shareholder Votes

Exterran will take all action necessary in accordance with applicable law and its organizational documents to set a record date for, duly give notice of, convene and hold a special meeting of its stockholders following the mailing of the Proxy Statement/Prospectus for the purpose of obtaining the Exterran Stockholder Approval on a date mutually selected by Exterran and Enerflex as soon as reasonably practicable following the date when the Form F-4 is declared effective by the SEC (which we refer to as the “clearance date”) and in any case, within 45 following the clearance date. Unless Exterran has made a Change of Recommendation in compliance with the provisions of the Merger Agreement, Exterran will include its recommendation for the Exterran Stockholders to vote to adopt the Merger Agreement in the Proxy Statement/Prospectus, and will solicit, and use its reasonable best efforts to obtain, the Exterran Stockholder Approval at the Exterran Stockholder Meeting (including by soliciting proxies in favour of the adoption of the Merger Agreement) as soon as reasonably practicable.

Exterran will cooperate with and keep Enerflex informed on a reasonably current basis regarding its solicitation efforts and voting results following the dissemination of the Proxy Statement/Prospectus to its stockholders. Exterran (i) will adjourn or postpone the Exterran Stockholder Meeting (A) to allow time for the filing and dissemination of any supplemental or amended disclosure document that the Exterran board has determined in good faith (after consultation with its outside legal counsel) is required to be filed and disseminated under applicable law or (B) if as of the time that the Exterran Stockholder Meeting is originally scheduled (as set forth in this Management Information Circular) there are insufficient shares of Exterran Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Exterran Stockholder Meeting and (ii) may, and at Enerflex’s request will, adjourn or postpone the Exterran Stockholder Meeting to allow reasonable additional time to solicit additional proxies necessary to obtain the Exterran Stockholder Approval; provided, however, that, unless otherwise agreed by the parties, the Exterran Stockholder Meeting will not be adjourned or postponed to a date that is more than 20 Business Days after the date for which the Exterran Stockholder Meeting was previously scheduled; provided, further, that the Exterran Stockholder Meeting will not be adjourned or postponed to a date on or after two Business Days prior to the End Date or a date that requires Exterran to select a new record date under applicable law. Without the prior written consent of Enerflex, the adoption of the Merger Agreement will be the only matter (other than matters of procedure and matters required by applicable law to be voted on by Exterran Stockholders in connection with the adoption of the Merger Agreement) that Exterran will propose to be acted on by Exterran Stockholders at the Exterran Stockholder Meeting.

Subject to the provisions of the Merger Agreement, Enerflex will take all action necessary in accordance with applicable law and its organizational documents to set a record date for, duly give notice of, convene and hold the Enerflex Special Meeting following the mailing of the Management Information Circular for the purpose of obtaining the Enerflex Shareholder Approval on a date mutually selected by the Exterran and Enerflex as soon as reasonably practicable following the clearance date and, in any case, within 45 days following the clearance date. Unless Enerflex has made a Change of Recommendation in compliance with the provisions of the Merger Agreement, Enerflex will include the Enerflex recommendation in the Management Information Circular, and will solicit, and use its reasonable best efforts to obtain, the Enerflex Shareholder Approval at the Enerflex Special Meeting (including by soliciting proxies in favour of the Enerflex Common Share issuance) as soon as reasonably practicable.

Enerflex will cooperate with and keep Exterran informed on a reasonably current basis regarding its solicitation efforts and voting results following the dissemination of the Management Information Circular to the Enerflex Shareholders. Enerflex (i) will adjourn or postpone the Enerflex Special Meeting (A) to allow time for the filing and dissemination of any supplemental or amended disclosure document that the Enerflex Board has determined in good faith (after consultation with its outside legal counsel) is required to be filed and disseminated under applicable law or (B) if as of the time that the Enerflex Special Meeting is originally scheduled (as set forth in the Management Information Circular) there are insufficient Enerflex Common Shares represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Enerflex Special Meeting and (ii) may, and at Exterran’s request will, adjourn or postpone the Enerflex Special Meeting to allow reasonable additional time to solicit additional proxies necessary to obtain the Enerflex Shareholder Approval; provided, however, that, unless otherwise agreed by the parties, the Enerflex Special Meeting will not be adjourned or postponed to a date that is more than 20 Business Days after the date for which the Enerflex Special Meeting was previously scheduled; provided, further, that the Enerflex Special Meeting will not be adjourned or postponed to a date on or after two Business Days prior to the End Date or a date that requires Enerflex to select a new record date under applicable law. Without the prior written consent of Exterran (which consent will not be unreasonably withheld, conditioned or delayed), the approval of the Enerflex Common Share issuance will be the only matter (other than matters of procedure and matters required by applicable law to be voted on by Enerflex Shareholders in connection with the approval of the Enerflex Common Share issuance) that Enerflex will propose to be acted on by the Enerflex Shareholders at the Enerflex Special Meeting.

The obligations of Exterran and Enerflex to hold the meetings of their respective stockholders and shareholders will not be affected solely by the making of a Change of Recommendation.

Financing

Debt Financing

Enerflex has agreed to use its reasonable best efforts, and will cause each of its Subsidiaries to use its reasonable best efforts to take all actions necessary to obtain the Debt Financing on the conditions described in the Debt Commitment Letter, including

 

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(i) maintaining in effect the Debt Commitment Letter, (ii) negotiating and entering into definitive agreements with respect to the Debt Financing consistent with the terms and conditions contained therein on or prior to the closing date of the Transaction, (iii) satisfying (or obtaining a waiver of) all conditions in the Debt Commitment Letter and the definitive agreements that are applicable to and within the reasonable control of Enerflex and are necessary to enable the consummation of the Debt Financing concurrently with or prior to Closing, (iv) consummating the Debt Financing concurrently with or prior to Closing, and (v) enforcing its rights under the Debt Commitment Letter, in each case in a timely and diligent manner.

In the event (x) any portion of the Debt Financing contemplated by the Debt Commitment Letter that is required to fund the financing amounts becomes unavailable (including pursuant to the “flex” terms within the Debt Commitment Letter) regardless of the reason therefor, Enerflex will promptly notify Exterran in writing of such unavailability and will use its reasonable best efforts, and will cause each of its Subsidiaries to use their reasonable best efforts, to obtain as promptly as practicable following the occurrence of such event, alternative debt or other financing for any such portion from alternative sources or (y) Enerflex decides, in its sole discretion, to replace all or any portion of the Debt Financing with alternative debt or other financing, such Alternative Financing will: (A) be in an amount that, when taken together with the aggregate amount of net proceeds available from the Debt Financing, if any, that remains available and cash and cash equivalents immediately available to Enerflex at the Closing, is sufficient to pay the financing amounts; (B) not be subject to any conditions precedent to funding that are additional to, expand on or are more onerous on Enerflex and its Affiliates than, the conditions set forth in the Debt Commitment Letter except any customary conditions for a bridge facility or a bond financing that (taken as a whole) are not materially less favourable to Enerflex (in the reasonable judgment of Enerflex) than the conditions (taken as a whole) contained in the Debt Commitment Letter and (C) not (i) reasonably be expected to prevent, materially delay or materially impede the consummation of the Merger or prevent or materially impede the repayment or refinancing of a material portion of any indebtedness of Exterran that constitutes “Refinanced Indebtedness” (as defined in the initial Debt Commitment Letter), in each case, as contemplated by the Merger Agreement, (ii) materially adversely impact the ability of Enerflex to enforce its rights against the other parties to the Debt Commitment Letter or the definitive agreements as so amended, replaced, supplemented or otherwise modified, or (iii) impose material obligations on Exterran or any of its Subsidiaries that would be effective prior to Closing. Enerflex or Merger Sub will provide Exterran, upon reasonable request, with information and documentation regarding the Debt Financing as is reasonably necessary or advisable to allow Exterran to monitor the progress of the Debt Financing activities. Without limiting the generality of the foregoing, Enerflex will notify Exterran as soon as reasonably practicable (x) if Enerflex becomes aware that there exists any actual or threatened (in writing) material breach, default, repudiation, cancellation or termination of a Debt Commitment Letter or any definitive agreement by any financing party thereto of which Enerflex has become aware or if Enerflex has received written communication from any financing party with respect to any actual material breach, default, repudiation, cancellation or termination of any provision in a Debt Commitment Letter or any definitive agreement by any financing party or (y) if Enerflex determines in good faith that it will not be able to obtain any or all of the Debt Financing on the conditions described in the Debt Commitment Letter prior to Closing. Enerflex will deliver to Exterran true and complete copies of all definitive agreements in connection with an Alternative Financing (provided that such copies may be subject to customary redactions with respect to fee amounts and pricing and other economic terms, including “market flex” provisions, none of which would reasonably be expected to affect the conditionality, enforceability, availability, termination or aggregate principal amount of the Debt Financing or the Debt Commitment Letter). The obligations described herein will also apply to any Alternative Financing, provided that any changes required for such financing can be made that do not materially alter the obligations above.

Enerflex and Merger Sub have acknowledged and agreed that their obligations under the Merger Agreement to consummate the Merger or any of the other transactions contemplated, are not subject to, or conditioned on, the receipt or availability of any funds or financing (including the Debt Financing).

Cooperation of Exterran

Exterran has agreed to use its reasonable best efforts, and will cause each of its Subsidiaries to use its reasonable best efforts, and each of them will use their reasonable best efforts to cause their respective representatives to use their reasonable best efforts, to provide customary, reasonable and timely cooperation, to the extent reasonably requested by Enerflex, in connection with the offering, arrangement, syndication, marketing, consummation, issuance or sale of any Debt Financing or Alternative Financing (provided, that such requested cooperation does not unreasonably interfere with the ongoing operations of Exterran or its Affiliates), including, to the extent so requested, using reasonable best efforts to:

 

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as promptly as reasonably practical, furnish Enerflex, Merger Sub and the financing parties (and their respective representatives, as applicable) with the required financing information and such further information as may be reasonably necessary for the required financing information to remain compliant and such other customary financial and other information regarding Exterran and its Subsidiaries as may be reasonably requested by, and is necessary for, Enerflex or Merger Sub to fulfill its conditions and obligations under the Debt Commitment Letter;

 

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provide reasonable and customary assistance to Enerflex, Merger Sub and the financing parties (and their respective representatives, agents and advisors, as applicable) in their preparation of (A) offering documents, offering memoranda, offering circulars, private placement memoranda, registration statements, prospectuses, syndication documents and other syndication materials, including information memoranda, lender and investor presentations, bank books and other marketing documents, and similar documents to be used in connection with any portion of the Debt Financing and (B) materials for rating

 

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agency presentations, including (but subject to the limitation set forth below) by providing any financial information and other data required to prepare any pro forma financial statements that are required under applicable securities laws to be included in, or as may otherwise be reasonably required for and are customarily included in the foregoing financing materials;

 

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make senior management of Exterran available, at reasonable times and locations and upon reasonable prior notice, to participate in meetings, drafting sessions, presentations, road shows, rating agency presentations and due diligence sessions and other customary syndication activities;

 

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cause Exterran’s independent registered accounting firm to provide customary assistance, including by using reasonable best efforts to cause Exterran’s independent registered accounting firm (A) to provide customary comfort letters (including “negative assurance” comfort) in connection with any capital markets transaction comprising a part of the Debt Financing to the applicable financing parties, (B) to provide any necessary consent to the inclusion of its audit report in respect of any financial statements of Exterran included or incorporated in any of the applicable financing materials, and (C) to participate in a reasonable number of due diligence sessions at reasonable times and locations and upon reasonable prior notice;

 

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provide customary authorization letters authorizing the distribution of Exterran’s information to prospective lenders in connection with a syndicated bank financing;

 

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assist Enerflex, Merger Sub and the financing parties in obtaining or updating corporate, facility and issue credit ratings;

 

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assist in the negotiation, preparation and (contingent upon the Closing) execution and delivery of any credit agreement, indenture, note, debenture or other debt security, purchase, underwriting, or agency agreement, guarantees, security documents, including any required information schedules or disclosures thereto, cash management agreements, hedging agreements, other supporting documents and customary closing certificates, and any other definitive and ancillary documentation for the Debt Financing as may be reasonably requested by Enerflex, in each case as contemplated in connection with the Debt Financing;

 

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make introductions of Enerflex to Exterran’s existing lenders and facilitate relevant coordination between Enerflex and such lenders;

 

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cooperate with the due diligence of the financing parties and their representatives in connection with the Debt Financing, to the extent customary and reasonable, including the provision of all such information requested with respect to the property and assets of Exterran and its Subsidiaries and by providing to internal and external counsel of Enerflex, Merger Sub and the financing parties, as applicable, customary back-up certificates and factual information to support any legal opinion that such counsel may be required to deliver in connection with the Debt Financing; provided, that, Exterran and its Affiliates will not be required to deliver or cause the delivery of any legal opinions related to the Debt Financing;

 

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deliver, at least seven Business Days prior to Closing, to the extent reasonably requested in writing at least ten Business Days prior to Closing, all documentation and other information regarding Exterran and its Subsidiaries that any financing party reasonably determines is required by domestic and foreign regulatory authorities under applicable “know your customer” and domestic and foreign anti-money-laundering rules and regulations and, to the extent required by any financing party, beneficial ownership certificates;

 

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cooperate with and use reasonable best efforts to provide all reasonable assistance to Enerflex in connection with any steps Enerflex may determine are necessary or desirable to take to prepay some or all amounts outstanding under Exterran existing credit facility, including (A) prepare and submit customary notices in respect of any such prepayment; provided that such prepayment will be contingent upon the occurrence of the Closing unless otherwise agreed in writing by Exterran; (B) obtain from the agent a customary payoff letter in respect of Enerflex’s existing credit facility; and (C) cooperate in the discharge and release of liens securing indebtedness referenced in this section, including obtaining customary lien termination and other instruments of discharge, in each case in a form reasonably acceptable to Enerflex;

 

•

to the extent requested by Enerflex, provide guarantees and facilitate the pledging of collateral and granting of security interests in connection with the Debt Financing (which discharges, releases, guarantees and security interests will not be required to take effect before the Closing);

 

•

as soon as reasonably practical following the receipt of written request of Enerflex, (A) commence one or more consent solicitations to the holders of the Exterran’s senior notes, to waive, amend or remove any applicable change of control provisions, defaults or other covenants that would apply in connection with, or otherwise restrict the ability of the parties to consummate, the Merger or the Debt Financing as contemplated in the Merger Agreement or the Debt Commitment Letter, as applicable, (B) commence one or more offers to purchase Exterran’s senior notes, (C) issue a notice of optional redemption to redeem Exterran’s senior notes pursuant to the terms, or (D) take such other actions as may be permitted or required by the terms of Exterran’s senior notes to satisfy and discharge, or defease any or all obligations under Exterran’s senior notes, in each case on the terms and conditions specified by Enerflex; provided that Exterran will not be required to commence any debt transaction until Enerflex has provided the necessary consent solicitation statement, offer to purchase, related letter of transmittal, supplemental indenture, redemption notice and other related documents; Enerflex will also consult with Exterran regarding the timing of any debt transaction in light of the regular financial reporting schedule of Exterran and the requirements of applicable law; and

 

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•

consent to the use of Exterran’s and its Subsidiaries’ trademarks, trade names and logos in connection with the Debt Financing; provided that such trademarks, trade names and logos are used solely in a manner that is not intended to, nor reasonably likely to, harm or disparage Exterran or its Subsidiaries or their respective reputation or goodwill.

Neither Exterran nor any of its Affiliates will be required to take any of the actions listed above that would require certain extraordinary measures or cause certain extraordinary results, in each case as set forth in the Merger Agreement. Furthermore, Exterran’s breach of any of the covenants required to be performed by it under this section will not be considered in determining the satisfaction of the condition set forth in the fifth bullet in the section entitled “The Merger Agreement—Conditions that Must be Satisfied or Waived for the Merger to Occur—Conditions to the Obligations of Enerflex and Merger Sub”, unless such breach is the primary cause of Enerflex being unable to consummate, and obtain the proceeds of, the Debt Financing at or prior to Closing.

Employee Matters

From the Effective Time until December 31, 2022, Enerflex will or will cause the Surviving Corporation or one of its Subsidiaries, as applicable, to provide to each employee of Exterran and its Subsidiaries, for so long as such employee remains employed by Enerflex or its Subsidiaries during such period with: (i) at least the same annual base salary or wage rate provided to such employee by Exterran or the Exterran Subsidiaries immediately prior to the Effective Time; (ii) the opportunity to earn at least the same economic value for the short-term incentives provided to such employee by Exterran or the Exterran Subsidiaries for the calendar year 2021; (iii) continuing medical, dental, vision, disability and life insurance benefits that are no less favourable than those provided under the Enerflex benefit plans for similarly situated employees of Enerflex or any of its Subsidiaries; and (iv) the same severance and post-termination benefits that an Exterran continuing employee would have received for a termination of employment immediately prior to the Effective Time. Each Exterran continuing employee will retain all of such employee’s accrued but unpaid vacation, sick time or other paid time off as of the Effective Time, to be administered in accordance with the policies in effect when such vacation or other paid time off is used during 2022 by each such Exterran continuing employee. With respect to the continuing medical, dental, vision, disability and life insurance benefits under this section, Enerflex will cause the applicable Enerflex benefit plan to: (x) waive all pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to such Exterran continuing employees, to the extent such pre-existing conditions, exclusions or waiting periods were satisfied under the similar Exterran benefit plan in effect immediately before the Effective Time; and (y) provide each such Exterran continuing employee with credit for any co-payments and deductibles paid (to the same extent such credit was given for the year under the similar Exterran benefit plan in effect immediately before the Effective Time) in satisfying any applicable deductible or out-of-pocket requirements.

With respect to any Enerflex benefit plan, excluding any retiree health plans or programs maintained by Enerflex or any of its Subsidiaries, if any, any defined benefit retirement plans or programs maintained by Enerflex or any of its Subsidiaries, if any, and any equity compensation arrangements maintained by Enerflex or any of its Subsidiaries, Enerflex will, or will cause the Surviving Corporation to, with respect to the continuing Exterran employees, credit all years of service of such individuals with Exterran or any of its Subsidiaries as if such service were with Enerflex, for purposes of eligibility to participate (but not for purposes of vesting or benefit accrual, except for vacation, if applicable) for full or partial years of service in any applicable Enerflex benefit plan in which such Exterran continuing employees may be eligible to participate after the Effective Time; provided, that such service will not be credited to the extent that: (i) such crediting would result in a duplication of benefits; (ii) such service was not credited under the corresponding Exterran employee plan; or (iii) such crediting is not allowed by the terms of such Enerflex benefit plan.

Exterran will terminate the Exterran non-qualified deferred compensation plan effective no later than the day immediately prior to the closing date of the Transaction. Enerflex has its own 401(k) plan, therefore, effective as of no later than the day immediately prior to the closing date of the Transaction, Exterran will, if requested by Enerflex in its sole discretion, freeze and terminate Exterran’s 401(k) plan with Fidelity Investments. Effective no later than the day immediately preceding the closing date of the Transaction, Exterran will terminate any employee plans maintained by Exterran or its Subsidiaries that Enerflex has requested to be terminated by providing a written notice to Exterran at least five (5) days prior to the closing date of the Transaction, provided, that such Exterran employee plans can be terminated in accordance with their terms and applicable law. For greater certainty, the provisions of this section do not affect the Exterran equity awards.

Without limiting the foregoing, the provisions in the “Employee Matters” section under the Merger Agreement are solely for the benefit of the parties to the Merger Agreement, and no current or former director, employee or consultant or any other person will be a third-party beneficiary of the Merger Agreement, and nothing in the Merger Agreement will prevent Enerflex, the Surviving Corporation or any of their Affiliates from terminating the employment of any Exterran continuing employee.

Enerflex, Merger Sub and Exterran acknowledge and agree that: (i) the Merger will constitute a “change in control” (or concept of similar import) under the Exterran benefit plans identified in the Exterran disclosure schedules; and (ii) as a result of the Merger, the individuals identified in the Exterran disclosure schedules will be deemed to have experienced a “good reason” event (or similar concept), as applicable, as defined under such Exterran benefit plans.

With respect to matters described in this “Employee Matters” section, Exterran will not send any written notices or other written communication materials to Exterran employees without the prior written consent of Enerflex. Exterran will cooperate and collaborate with Enerflex on any such notices or communications.

 

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Indemnification and Insurance

Enerflex, Merger Sub and Exterran agree that all rights to indemnification and related rights to reimbursement of expenses, if any, (in each case, solely with respect to claims arising from actions taken or not taken in good faith within the scope of their employment or service with Exterran or its Subsidiaries prior to Closing) now existing in favour of the present directors, officers or employees of Exterran or its Subsidiaries (in each case, solely with respect to such claims when acting in such capacity and scope) as provided in their respective organizational documents or in certain agreement as disclosed in the disclosure schedules will survive the Transaction and will continue in full force and effect for six years following the Effective Time and will not be amended, restated or otherwise modified by the Merger.

Prior to the Effective Time, Exterran may purchase prepaid non-cancellable runoff directors’ and officers’ liability insurance providing equivalent coverage and amounts for a period of six (6) years from the closing date of the Transaction with respect to claims arising from or related to facts or events that occur on or before the closing date of the Transaction. The total cost of such run-off directors’ and officers’ liability insurance will not exceed 300% of the current annual aggregate premium for directors’ and officers’ liability insurance currently maintained by Exterran and disclosed in the Exterran disclosure schedules.

The indemnification and insurance provisions contained in the Merger Agreement will survive the Effective Time and are expressly intended to benefit, and are enforceable by, each of the indemnified parties. If the Surviving Corporation or any of its successors or assigns: (i) consolidates with or merges into any other person and is not the continuing or surviving entity of such consolidation or merger; or (ii) transfers all or substantially all of its assets to any other person or engages in any similar transaction, then in each such case, the Surviving Corporation will cause proper provision to be made so that the successors and assigns of the Surviving Corporation will expressly assume the obligations set forth in this section.

Regulatory Filings and Efforts; Other Actions

General Obligations

Subject to the Merger Agreement, each of the parties thereto will (and will cause each of their Subsidiaries to) use their respective reasonable best efforts to promptly take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under the Merger Agreement and applicable laws to cause the closing conditions to be satisfied and to consummate, and make the Merger and the Transactions contemplated by the Merger Agreement effective as promptly as practicable after the date of the Merger Agreement, and in any event prior to the End Date, including by preparing and filing with all Governmental Entities as promptly as practicable after the date of the Merger Agreement all applications, notices, petitions, filings, ruling requests, and other documents necessary to consummate the Merger, and to obtain as promptly as practicable after the date of the Merger Agreement all permits, consents, waivers, approvals, clearances, authorizations and expirations or terminations of waiting periods necessary to be obtained from the antitrust authorities and any other Governmental Entity in order to consummate the Merger.

Except as otherwise permitted under the Merger Agreement, Enerflex will not, and will cause the Enerflex Subsidiaries not to, and Exterran will not, and will cause the Exterran Subsidiaries not to, acquire or agree to acquire, by merging with or into or consolidating with, or by purchasing a portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division, or otherwise acquire or agree to acquire any assets, or take any other action, if the entering into a definitive agreement relating to, or the consummation of, such acquisition, merger or consolidation, or the taking of any other action, would reasonably be expected to (i) impose any material delay in the obtaining of, or materially increase the risk of not obtaining, any authorizations, consents, orders, clearances or approvals of any Governmental Entity necessary to consummate the Transactions contemplated by the Merger Agreement or the expiration or termination of any applicable waiting period; (ii) increase, in any material respect, the risk of any Governmental Entity entering an order prohibiting the consummation of the Transactions contemplated by the Merger Agreement; (iii) increase the risk, in any material respect, of not being able to remove any such order on appeal or otherwise; or (iv) prevent or materially delay the consummation of the Transactions contemplated by the Merger Agreement.

Regulatory Filings and Obligations

Exterran, Enerflex and each of their Subsidiaries will:

 

•

make an appropriate and complete filing of a notification and report form pursuant to the HSR Act with respect to the Merger within 10 Business Days of the date of the Merger Agreement;

 

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make all other filings that are required to be made in order to consummate the Merger with the antitrust authorities;

 

•

not extend any waiting period under the HSR Act or the applicable laws of other applicable non-U.S. jurisdictions of the antitrust authorities, if required to have a waiting period, or enter into any agreement with the antitrust authorities or any other Governmental Entity not to consummate the Merger, without consulting with the other party in good faith; and

 

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supply as promptly as practicable any additional information or documentation that may be requested by the antitrust authorities and use their respective reasonable best efforts to take all other actions necessary, proper or advisable to obtain the Required Antitrust Approvals or to cause the expiration or termination of the applicable waiting periods under the HSR Act and any other antitrust law as soon as practicable (including complying with any “second request” for information or similar request from a Governmental Entity pursuant to other regulatory laws).

 

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Cooperation and Consultation

In connection with obtaining all required governmental approvals for the Merger under the antitrust laws, each of Enerflex and Exterran will:

 

•

cooperate in all respects with each other in connection with any material communication, filing or submission and in connection with any investigation or other inquiry, including any action initiated by a private party;

 

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keep the other party and its counsel promptly informed of any material communication received by such party from, or given by such party to, the antitrust authorities or other Governmental Entity and of any material communication received or given in connection with any action by a private party, in each case regarding the Merger;

 

•

consult with each other in advance of any meeting or conference with the antitrust authorities or any other Governmental Entity or, in connection with any action by a private party, with any other person, and to the extent permitted by the antitrust authorities or such other Governmental Entity or other person, give the other party or its counsel the opportunity to attend and participate in such meetings and conferences; and

 

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permit the other party and its counsel to review in advance any submission, filing or material communication (and documents submitted therewith) intended to be given by it to the antitrust authorities or any other Governmental Entity; provided that materials may be redacted to remove business secrets and other confidential material so long as the disclosing party acts reasonably in identifying such material for redaction. Enerflex and Exterran may, as each deems advisable and necessary, reasonably designate any competitively sensitive material to be provided to the other party as “Antitrust Counsel Only Material.” Such materials and the information contained therein will be given only to the outside antitrust counsel of the recipient and will not be disclosed by such outside counsel to employees, officers or directors of the recipient unless express permission is obtained in advance from the source of the materials (Enerflex or Exterran, as the case may be) or its legal counsel.

In furtherance and not in limitation of the other covenants of the parties in the Merger Agreement, if Enerflex determines, in its sole discretion, to defend through litigation on the merits any claim asserted in any court or other governmental body with respect to the Merger by the Federal Trade Commission, the Department of Justice or any other applicable Governmental Entity, Exterran will use its reasonable best efforts to cooperate with and support Enerflex’s efforts.

In furtherance of the parties’ reasonable best efforts, each of Enerflex and the Enerflex Subsidiaries, on the one hand, and each of Exterran and the Exterran Subsidiaries, on the other hand, to the extent required to obtain Required Antitrust Approvals or any necessary governmental approvals, will:

 

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propose, negotiate or offer to effect, or consent or commit to, any sale, leasing, licensing, transfer, disposal, divestiture or other encumbrance, or holding separate, of any assets, licenses, operations, rights, product lines, businesses or interest therein (which we refer to as a “divestiture”); and

 

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take or agree to take any other action, agree or consent to, make any concession in respect of, or permit or suffer to exist any condition or requirement setting forth, any limitations or restrictions on freedom of actions with respect to, or its ability to retain, or make changes in, any assets, licenses, operations, rights, product lines, businesses or interest therein (which we refer to as a “remedy”).

Notwithstanding the foregoing, Exterran and the Exterran Subsidiaries may not take any such action without Enerflex’s express prior written consent; and no such divestiture or remedy will be required if: (i) such divestiture or remedy would, in the good faith reasonable judgment of Enerflex, be reasonably expected to materially impair or diminish the benefits or advantages it expects to receive from the Merger and the Transactions contemplated by the Merger Agreement; or (ii) such divestiture or remedy would have a Material Adverse Effect on the business of (x) Enerflex and the Enerflex Subsidiaries, taken as a whole, or (y) Exterran and the Exterran Subsidiaries, taken as a whole, and no party or any of their respective Subsidiaries will be required to take any of the actions referred to above with respect to a divestiture or remedy unless the effectiveness is conditioned on the occurrence of the Closing.

Enerflex will have the right to direct all matters with any Governmental Entity consistent with its obligations under the Merger Agreement. Notwithstanding anything to the contrary in the Merger Agreement, Enerflex will make all strategic decisions and lead all discussions, negotiations and other proceedings, and coordinate all activities with respect to any requests that may be made by, or any actions, consents, undertakings, approvals, or waivers that may be sought by or from, any Governmental Entity, in connection with obtaining governmental approvals for the Merger under the antitrust laws, including determining the strategy for contesting, litigating or otherwise responding to objections to, or proceedings challenging, the consummation of the Merger, in each case subject to good faith consultations with Exterran reasonably in advance and in consideration of Exterran’s views. Prior to the Effective Time, Exterran will also cooperate with Enerflex in good faith with a view to preparing filings that may need to be made post-closing under any applicable antitrust laws, including promptly providing all information that may be required or reasonably requested in connection with the preparation of such filings and supplying any additional information that may be required or reasonably requested by the applicable Governmental Entity in connection with such filings.

 

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Other Covenants and Agreements

Enerflex and Exterran have agreed in the Merger Agreement to various other covenants and agreements regarding various matters, including with respect to:

 

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each party providing the other party with reasonable access, subject to compliance with applicable laws, to such party’s businesses, properties, personnel, agents, contracts, commitments, books and records and other reasonably requested information during the period prior to the Effective Time;

 

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cooperation between Enerflex and Exterran in the preparation and filing of the Form F-4 and the Management Information Circular and coordination of the Exterran Stockholder Meeting and Enerflex Special Meeting, including commercially reasonable efforts to cause the respective record dates and dates and times of the two meetings to occur on the same calendar day (and in any event as close in time as possible);

 

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each party taking such actions as are necessary to complete the Transactions contemplated by the Merger Agreement if any takeover statute is or may become applicable to the Transactions contemplated by the Merger Agreement;

 

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cooperation between Exterran, Enerflex and Merger Sub in connection with public announcements regarding the Transactions contemplated by the Merger Agreement;

 

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cooperation with Enerflex and the use of reasonable best efforts by Exterran to delist Exterran Common Stock from the NYSE and deregister Exterran Common Stock under the Exchange Act as promptly as practicable after the Effective Time;

 

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the use of reasonable best efforts by Enerflex to cause the Enerflex Common Shares that are to be issued in the Merger to be listed on the NYSE or NASDAQ, subject to official notice of issuance, and the TSX, subject to customary listing conditions, prior to the Effective Time;

 

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each party taking reasonably necessary or advisable steps to cause any dispositions of Exterran equity securities and any acquisitions of Enerflex equity securities, pursuant to the Transactions contemplated by the Merger Agreement by each individual who is subject to the reporting requirements of section 16(a) of the Exchange Act to be exempt under Rule 16b-3 promulgated under the Exchange Act;

 

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Exterran giving Enerflex the reasonable opportunity to participate in the defense or settlement of any stockholder litigation brought against Exterran or the Exterran board relating to the Transactions contemplated by the Merger Agreement and Exterran refraining from compromising or settling, or agreeing to compromise or settle, any such stockholder litigation without the prior written consent of Enerflex (which will not be unreasonably withheld, conditioned or delayed);

 

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certain tax matters;

 

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coordination between the parties of the declaration, setting of record dates and payment dates of dividends on Exterran Common Stock; and

 

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Enerflex executing and delivering written stockholder consent of Merger Sub adopting and approving the Merger Agreement.

Termination or Abandonment of the Merger Agreement

The Merger Agreement may be terminated and abandoned at any time prior to the Effective Time whether before or after any approval by Exterran Stockholders or Enerflex Shareholders of the matters presented in connection with the Transaction:

 

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by mutual written consent of Exterran and Enerflex; or

 

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by either Exterran or Enerflex, if:

 

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the Effective Time has not occurred on or before the End Date (provided that the End Date will automatically be extended in accordance with the terms of the Merger Agreement);

 

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any court or Governmental Entity of competent jurisdiction that must grant a Required Antitrust Approval has denied approval of the Merger and such denial has become final and nonappealable or any Governmental Entity of competent jurisdiction has enacted, issued or promulgated any law that prohibits or makes illegal the consummation of the Transaction unless the failure to obtain a Required Antitrust Approval is due to the failure of the party seeking termination to perform or observe its obligations, covenants or agreement set forth in the Merger Agreement;

 

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Exterran Stockholder Approval of the Exterran Merger Proposal is not obtained at Exterran Stockholder Meeting or at any adjournment or postponement thereof; or

 

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Enerflex Shareholder Approval of the Share Issuance Resolution is not obtained at the Enerflex Special Meeting or at any adjournment or postponement thereof; or

 

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by Exterran:

 

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if there has been a breach or failure to perform in any material respect by Enerflex or Merger Sub of any representation, warranty, covenant or agreement set forth in the Merger Agreement and such breach or failure (A) would result in a failure of certain conditions to Closing as set out in the Merger Agreement and (B) is not curable prior to the End Date, or if curable prior to the End Date, has not been cured within 20 Business Days after the giving of notice thereof by Exterran;

 

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however, the right to terminate the Merger Agreement due to such a breach or failure will not be available to Exterran if Exterran is in material breach of any representation, warranty, agreement or covenant contained in the Merger Agreement;

 

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prior to receipt of the Exterran Stockholder Approval, in order to enter into a definitive agreement providing for an Exterran Superior Proposal in respect of Exterran to the extent permitted and subject to compliance with the terms of the Merger Agreement; however, immediately prior to or contemporaneously with the termination of the Merger Agreement, Exterran will pay to Enerflex the Exterran termination fee;

 

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prior to receipt of Enerflex Shareholder Approval, if Enerflex Board has effected a Change of Recommendation or Enerflex materially breaches its non-solicitation obligations under the Merger Agreement; or

 

•

if all the conditions to the Merger under the Merger Agreement have been satisfied (other than conditions which by their nature cannot be satisfied until Closing and any conditions set forth in the Merger Agreement that have been waived by Exterran), Enerflex and Merger Sub fail to consummate the Closing on the anticipated closing date of the Transaction due to failure of all or a portion of the Debt Financing to be funded at Closing for any reason, and Exterran has delivered to Enerflex an irrevocable written notice confirming that the conditions to merger have been satisfied or waived, as applicable, and Exterran is ready to close but Enerflex and Merger Sub fail to consummate the Closing within five (5) Business Days following the later of the date the Closing should have occurred and receipt of the written notice by Exterran; or

 

•

by Enerflex:

 

•

if there has been a breach or failure to perform in any material respect by Exterran of any representation, warranty, covenant or agreement set forth in the Merger Agreement and such breach or failure would result in a failure (A) of certain conditions to Closing as set out in the Merger Agreement and (B) is not curable prior to the End Date, or if curable prior to the End Date, has not been cured within 20 Business Days after the giving of notice thereof by Enerflex; however, the right to terminate the Merger Agreement due to such a breach or failure will not be available to Enerflex if Enerflex or Merger Sub is in material breach of any representation, warranty, agreement or covenant contained in the Merger Agreement;

 

•

prior to the receipt of Enerflex Shareholder Approval, in order to enter into an agreement providing for an Enerflex Superior Proposal in accordance with the terms of the Merger Agreement; however, immediately prior to or contemporaneously with the termination of the Merger Agreement, Enerflex pays to Exterran the Enerflex termination fee; or

 

•

prior to receipt of Exterran Stockholder Approval, if Exterran board has effected a Change of Recommendation, or Exterran materially breaches its non-solicitation obligations under the Merger Agreement.

Notice of Termination; Effect of Termination

Except as described in the section below entitled “The Merger Agreement—Termination or Abandonment of the Merger Agreement—Termination Fees”, if the Merger Agreement is validly terminated in accordance with its terms, the Merger Agreement will be null and void and there will be no liability on the part of Exterran, Enerflex, Merger Sub or their respective Subsidiaries or Affiliates, except that: (i) certain provisions of the Merger Agreement will survive such termination, including those relating to termination payments and confidentiality; (ii) no such termination will relieve any party for liability for such party’s fraud or willful and material breach of any covenant or obligation contained in the Merger Agreement prior to its termination; and (iii) the confidentiality agreement, the expense reimbursement and indemnification provisions, the termination provisions and the miscellaneous provisions will survive the termination.

Termination Fees

Exterran has agreed to pay a termination payment of U.S.$10 million to Enerflex, less any amounts required to be withheld or deducted on account of taxes, in consideration for Enerflex’s disposition of its contractual rights under the Merger Agreement, if:

 

•

the Merger Agreement is terminated by Exterran prior to receipt of Exterran Stockholder Approval, in order to enter into a definitive agreement providing for an Exterran Superior Proposal in respect of Exterran;

 

•

the Merger Agreement is terminated by Enerflex because, prior to receipt of Exterran Stockholder Approval, Exterran board has effected a Change of Recommendation; or

 

•

(i) after the date of the Merger Agreement, a qualifying transaction in respect of Exterran is publicly proposed or publicly disclosed prior to, and not publicly withdrawn at least two Business Days prior to, the Exterran Stockholder Meeting; (ii) the Merger Agreement is terminated by (A) either party as a result of the occurrence of the End Date prior to receipt of Exterran Stockholder Approval or due to the failure to obtain Exterran Stockholder Approval or (B) Enerflex for Exterran having breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreement contained in the Merger Agreement (as described above); and (iii) concurrently with or within 12 months after such termination Exterran consummates a qualifying transaction or enters into a definitive agreement providing for a qualifying transaction and later consummates such transaction.

 

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Enerflex has agreed to pay or cause to be paid a termination payment of U.S.$20 million to Exterran, less any amounts required to be withheld or deducted on account of taxes, in consideration for Exterran’s disposition of its contractual rights under the Merger Agreement, if:

 

•

the Merger Agreement is terminated by Enerflex prior to receipt of the Enerflex Shareholder Approval, in order to enter into a definitive agreement providing for an Enerflex Superior Proposal in respect of Enerflex;

 

•

the Merger Agreement is terminated by Exterran prior to receipt of Enerflex Shareholder Approval because the Enerflex Board has effected a Change of Recommendation; or

 

•

(i) after the date of the Merger Agreement, a qualifying transaction in respect of Enerflex is publicly proposed or publicly disclosed prior to, and not publicly withdrawn at least two Business Days prior to, the Enerflex Special Meeting; (ii) the Merger Agreement is terminated by (A) either party for the Effective Time not occurring on or before the End Date prior to the receipt of the Enerflex Shareholder Approval or due to the failure to obtain the Enerflex Shareholder Approval or (B) Exterran for Enerflex or Merger Sub having breached or failed to perform in any material respect any of their representations, warranties, covenants or other agreements contained in the Merger Agreement (as described above); and (iii) concurrently with or within 12 months after such termination Enerflex consummates a qualifying transaction or enters into a definitive agreement providing for a qualifying transaction and later consummates such transaction.

Enerflex has also agreed to pay or cause to be paid a termination payment of U.S.$30 million to Exterran less any amounts required to be withheld or deducted on account of taxes, if Exterran terminates the Merger Agreement in connection with Enerflex’s failure to secure all, or any portion of, the Debt Financing to be funded at Closing for any reason; provided that Exterran has to provide written notice to Enerflex stating Exterran’s readiness to consummate the Transaction and Enerflex fails to consummate the Transaction within five (5) Business Days after such termination.

Any termination payment payable will be paid as proceeds in consideration for the disposition of the receiving party’s rights under the Merger Agreement.

Expenses

Except as set forth in the Merger Agreement, whether or not the Merger is consummated, all costs and expenses incurred in connection with the Merger, the Merger Agreement and the Transactions contemplated thereby will be paid by the party incurring or required to incur such expenses, except that all filing fees paid by any party in respect of the regulatory filing under the antitrust laws will be borne equally by Enerflex and Exterran.

Amendment; Waivers

At any time prior to the Effective Time, whether before or after receipt of Exterran Stockholder Approval and the Enerflex Shareholder Approval, any provision of the Merger Agreement may be amended or waived only if such amendment or waiver is in writing and signed, in the case of an amendment, by Exterran, Enerflex and Merger Sub, or in the case of a waiver, by the party against whom the waiver is to be effective; provided, that (a) after receipt of Exterran Stockholder Approval, if any such amendment or waiver will by applicable law or in accordance with the rules and regulations of the NYSE, require further approval of the stockholders of Exterran, the effectiveness of such amendment or waiver will be subject to the approval of the stockholders of Exterran and (b) after receipt of the Enerflex Shareholder Approval, if any such amendment or waiver will by applicable law or in accordance with the rules and regulations of the NYSE or NASDAQ, as applicable, or the TSX require further approval of the Enerflex Shareholders, the effectiveness of such amendment or waiver will be subject to the approval of the Enerflex Shareholders. No failure or delay by any party in exercising any right under the Merger Agreement will operate as a waiver of such right nor will any single or partial exercise thereof preclude any other or further exercise of any other right under the Merger Agreement. The rights and remedies therein provided will be cumulative and not exclusive of any rights or remedies provided by law.

Specific Enforcement; Remedies

Each party agrees that, in the event of any breach or threatened breach by any other party of any covenant or obligation contained in the Merger Agreement, the non-breaching party will be entitled (in addition to any other remedy that may be available to it whether in law or equity, including monetary damages) to obtain (i) a decree or order of specific performance to enforce the observance and performance of such covenant or obligation and (ii) an injunction restraining such breach or threatened breach.

While Exterran may pursue both a grant of specific performance and the payment of the financing termination fee under the Merger Agreement, under no circumstances is Exterran permitted or entitled to receive both (i) a grant of specific performance that permits the consummation of the Transactions contemplated by the Merger Agreement, including the Merger, and (ii) monetary damages in connection with the Merger Agreement or any termination of the such agreement, including any portion of the financing termination fee.

Each party further agrees that no other party or any other person will be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in the specific performance section of the Merger Agreement, as summarized above, and each party irrevocably waives any right it may have to require the obtaining, furnishing or posting of any such bond or similar instrument.

 

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Governing Law

The Merger Agreement is governed by the law of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma financial information has been derived from the audited historical financial statements of Enerflex and Exterran for the fiscal year ended December 31, 2021 and the unaudited historical financial statements of Enerflex and Exterran as at and for the six months ended June 30, 2022 incorporated by reference herein or included elsewhere in this Management Information Circular. The unaudited pro forma statement of financial position as at June 30, 2022 presents the financial positions of Enerflex and Exterran giving pro forma effect to the transaction described below as if these events occurred on June 30, 2022. The unaudited pro forma statements of earnings for the year ended December 31, 2021 and the six months ended June 30, 2022 present the results of operations of Enerflex and Exterran giving pro forma effect to the transaction described below as if these events occurred on January 1, 2021 (collectively the “unaudited pro forma financial information”).

The Enerflex unaudited consolidated statement of financial position as at June 30, 2022, the Enerflex unaudited consolidated statement of earnings for the three and six months ended June 30, 2022, and the Enerflex audited consolidated statement of earnings for the year ended December 31, 2021 were prepared in accordance with IFRS. The Exterran unaudited consolidated balance sheet as at June 30, 2022 and the Exterran audited consolidated statement of operations for the year ended December 31, 2021 were prepared in accordance with U.S. GAAP. The unaudited consolidated pro forma information is presented in accordance with IFRS.

The Transaction

The unaudited pro forma consolidated financial information should not be relied upon as being indicative of the results of operations had the transaction occurred on the dates indicated. The unaudited pro forma financial information also does not project results of operations or the financial position of Enerflex for any future period or date. The actual financial position and results of operations may differ significantly from the unaudited pro forma amounts reflected herein due to a variety of factors.

The unaudited pro forma financial information includes the following adjustments for the Transaction:

 

•

an estimated purchase price of $224.8 million comprised of the non-cash estimated share value of share conversion of $211.9 million based on 33,313,473 outstanding Exterran Common Stock and Enerflex’s closing share price of $6.36 on August 15, 2022, the non-cash estimated share value of the share-based awards of $8.5 million and the estimated fractional share amount of approximately $4.4 million in cash as Merger Consideration;

 

•

the use of proceeds of $1,192.0 million (U.S.$925.0 million) from the bridge loan, $75.6 million drawn from the new revolving credit facility, and existing cash in Exterran and Enerflex of $89.8 million to fund a portion of the Merger Consideration as above, to repay existing indebtedness of Exterran of $884.0 million (U.S.$686.2 million) and existing indebtedness of Enerflex of $348.9 million, and to pay related fees and expenses;

 

•

the payment of financing costs of approximately $56.4 million related to cancellation, make-whole, bridge financing and debt costs, $10.3 million of financing costs capitalized as part of the issuance of the new financing facilities, $6.5 million related to the settlement of share-based compensation awards liabilities, $23.4 million in post-combination expenses such as severances and $23.5 million in advisory, legal fees, and other transaction costs;

 

•

adjustments to convert the historical financial statements of Exterran prepared in accordance with U.S. GAAP to IFRS and to conform to the accounting policies used by Enerflex;

 

•

adjustments to translate the Exterran unaudited consolidated balance sheet as at June 30, 2022 and the Exterran unaudited consolidated statement of operations for the six months ended June 30, 2022 into Canadian dollars at a rate of U.S.$1.00 = $1.29 and U.S.$1.00 = $1.27, respectively and translate the Exterran audited consolidated statement of operations for the year ended December 31, 2021 into Canadian dollars at a rate of U.S.$1.00 = $1.25; and

 

•

changes in the carrying values of certain assets and liabilities of Exterran to reflect their preliminary, estimated fair values at the date of closing of the transaction, as well as values assigned to previously unrecognized intangible assets and related changes in amortization expenses.

The statements contained herein do not reflect the costs of any integration activities or benefits that may result from the realization of future cost savings from operating efficiencies, or any other synergies that may result from the transaction.

The unaudited pro forma adjustments are based upon available information and certain assumptions as described in the accompanying notes to the unaudited pro forma financial information, which management believes are reasonable. The unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what the actual combined financial information would have been if the transaction actually occurred on the dates indicated, nor are they necessarily indicative of future combined results of operations or combined financial condition. Actual results may differ materially from the estimates used within the accompanying unaudited pro forma financial information.

 

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The unaudited pro forma financial information has been prepared using the acquisition method of accounting, which will establish a new basis of accounting for all of the Exterran identifiable assets acquired and liabilities that will be assumed at fair value as of the date control is obtained and are subject to change. Enerflex will be the acquirer for accounting purposes and Exterran will be the acquiree, based on factors considered at the time of preparation of this form. The acquisition accounting is dependent upon certain valuations, changes in Enerflex’s share price, and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. Enerflex intends to complete the valuations and other assessments upon completion of the merger and will finalize the purchase price allocation as soon as practicable. The various assets and liabilities of Exterran have been measured based on preliminary estimates using assumptions that Enerflex believes are reasonable and based on information that is currently available. Differences between these preliminary estimates and the final acquisition accounting will occur, and these differences could have a material impact on the accompanying unaudited pro forma financial statements and the future results of operations and financial results of Enerflex.

The unaudited pro forma financial information should be read together with the Enerflex Annual MD&A and the Enerflex Interim MD&A, each incorporated by reference herein and Exterran’s annual and interim “Management’s Discussion and Analysis of Financial Condition and Results of Operations” attached to “Appendix E – Information Concerning Exterran Corporation” as Schedule C and Schedule D, respectively, and the historical financial statements and related notes included elsewhere in this Management Information Circular.

 

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Unaudited Pro Forma Consolidated Statement of Financial Position

As of June 30, 2022

(dollars in thousands)

 

		Historical																				Transaction Accounting Adjustments
		CAD Enerflex (IFRS)				U.S.$ Exterran (U.S. GAAP)				CAD Exterran (U.S. GAAP)				Presentation conforming adjustments				Notes				Pro forma adjustments				Notes				Pro forma consolidated (IFRS)
Assets
Current assets:
Cash and cash equivalents		$	147,078			$	57,089			$	73,565			$	—							$	(89,802	)			4,5a			$	130,841
Restricted cash			—				12,026				15,497				—								—								15,497
Accounts receivable			258,579				203,351				262,038				—								—								520,617
Contract assets			96,319				29,784				38,380				107				3c				—								134,806
Inventories			193,785				80,503				103,736				11,561				3c				2,342				5b				311,424
Work-in-progress related to finance leases			44,234				—				—				—								—								44,234
Current portion of finance leases receivable			20,965				6,647				8,565				—								—								29,530
Income taxes receivable			2,448				—				—				—								—								2,448
Derivative financial instruments			306				—				—				—								—								306
Other current assets			16,971				28,380				36,570				—								—								53,541
Current assets associated with discontinued operations			—				10,588				13,644				(11,668	)			3c				(1,976	)			5e				—
Total current assets			780,685				428,368				551,995				—								(89,436	)							1,243,244
Property, plant and equipment			95,088				603,457				777,614				(20,367	)			3b				—								852,335
Rental equipment			606,089				—				—				—								—								606,089
Lease right-of-use assets			45,866				21,204				27,324				—								12,011				5c				85,201
Finance leases receivable			118,207				28,887				37,224				—								—								155,431
Deferred tax assets			9,195				11,600				14,948				19,151				3d				—								43,294
Other assets			62,510				58,810				75,783				182,566				3d				(2,888	)			5f				317,971
Long-term contract assets			—				141,678				182,566				(182,566	)			3d				—								—
Intangible assets			7,202				—				—				20,367				3b				20,864				5d				48,433
Goodwill			568,044				—				—				—								9,848				4				577,892
Long-term assets associated with discontinued operations			—				1,517				1,955				—								(1,955	)			5e				—
Total assets		$	2,292,886			$	1,295,521			$	1,669,409			$	19,151							$	(51,556	)						$	3,929,890

 

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Unaudited Pro Forma Consolidated Statement of Financial Position

As of June 30, 2022

(dollars in thousands)

 

		Historical																				Transaction Accounting Adjustments
		CAD Enerflex (IFRS)				U.S.$ Exterran (U.S. GAAP)				CAD Exterran (U.S. GAAP)				Presentation conforming adjustments				Notes				Pro forma adjustments				Notes				Pro forma consolidated (IFRS)
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities		$	278,166			$	228,413			$	294,333			$	903				3c			$	(3,764	)			4			$	569,638
Warranty provision			6,395				—				—				—								—								6,395
Income taxes payable			9,250				—				—				19,151				3d				—								28,401
Deferred revenues			116,936				96,487				124,333				33				3c				(2,241	)			5g				239,061
Current portion of long-term debt			4,735				—				—				—								(4,735	)			5f				—
Current portion of lease liabilities			13,127				5,104				6,577				—								—								19,704
Derivative financial instruments			186				—				—				—								—								186
Current liabilities associated with discontinued operations			—				2,255				2,906				(936	)			3c				—								1,970
Total current liabilities			428,795				332,259				428,149				19,151								(10,740	)							865,355
Long-term debt			341,216				683,270				880,462				—								35,661				5f				1,257,339
Lease liabilities			39,834				25,421				32,758				—								—								72,592
Deferred tax liabilities			91,731				637				821				—								8,559				5h				101,111
Other liabilities			12,413				49,194				63,391				73,723				3c, d				(1,329	)			5g				148,198
Long-term contract liabilities			—				57,212				73,723				(73,723	)			3d				—								—
Long-term liabilities associated with discontinued operations			—				614				791				—				3c				—								791
Total liabilities			913,989				1,148,607				1,480,095				19,151								32,151								2,445,386
Shareholders’ equity:
Share capital			375,540				381				491				—								211,383				5i				587,414
Contributed surplus			659,537				753,340				970,754				—								(970,754	)			5i				659,537
Retained earnings			283,461				(568,542	)			(732,623	)			—								626,356				5i				177,194
Accumulated other comprehensive income			60,359				19,652				25,324				—								(25,324	)			5i				60,359
Treasury stock			—				(57,917	)			(74,632	)			—								74,632				5i				—
Total shareholders’ equity			1,378,897				146,914				189,314				—								(83,707	)							1,484,504
Total liabilities and shareholders’ equity		$	2,292,886			$	1,295,521			$	1,669,409			$	19,151							$	(51,556	)						$	3,929,890

See the accompanying notes to the unaudited pro forma consolidated financial information

 

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