UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

☐	Preliminary Proxy Statement

 

☐	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

☒	Definitive Proxy Statement

 

☐	Definitive Additional Materials

 

☐	Soliciting Material Pursuant to §240.14a-12

Exterran Corporation

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

☒	No fee required

 

☐	Fee paid previously with preliminary materials.

 

☐	Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

 

 

DATED SEPTEMBER 12, 2022

 

PROXY STATEMENT OF EXTERRAN CORPORATION		PROSPECTUS OF ENERFLEX LTD.

 

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

 

Dear Stockholders of Exterran Corporation:

On January 24, 2022, Exterran Corporation (which we refer to as “Exterran”), Enerflex Ltd. (which we refer to as “Enerflex”), and Enerflex US Holdings Inc., a direct wholly owned subsidiary of Enerflex (which we refer to as “merger sub”) entered into an Agreement and Plan of Merger (which, as it may be amended from time to time, we refer to as the “Merger Agreement”) that provides for the acquisition of Exterran by Enerflex. On the terms and subject to the conditions set forth in the Merger Agreement, merger sub will merge with and into Exterran (which we refer to as the “merger” or the “transaction”), with Exterran surviving the merger as a direct wholly owned subsidiary of Enerflex.

The merger will become effective at such time as the Certificate of Merger 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 (which we refer to as the “effective time”). At the effective time, each share of common stock, par value $0.01 per share, of Exterran (which we refer to as “Exterran common stock”) issued and outstanding immediately prior to the effective time (other than certain excluded shares as described in the Merger Agreement) that you own will be converted into the right to receive a number of Enerflex common shares (which we refer to as the “Enerflex common shares”) equal to 1.021 (which number we refer to as the “exchange ratio”), with any fractional shares to be paid in cash, without interest (which we refer to collectively as the “merger consideration”).

The exchange ratio is fixed and will not be adjusted to reflect changes in the price of Exterran common stock or Enerflex common shares prior to the effective time. We expect the Enerflex common shares issued in connection with the transaction will be listed on the New York Stock Exchange (which we refer to as the “NYSE”) and the Toronto Stock Exchange (which we refer to as the “TSX”). Based on the number of shares of Exterran common stock and Enerflex common shares outstanding on September 8, 2022, upon completion of the transaction, we expect that former holders of Exterran common stock (who we collectively refer to as “Exterran stockholders”) will own approximately 27.5% of the outstanding Enerflex common shares immediately after the merger and persons who were Enerflex shareholders immediately prior to the merger will own approximately 72.5% of the outstanding Enerflex common shares. Enerflex common shares are traded on the TSX under the symbol “EFX.” Exterran common stock is traded on the NYSE under the symbol “EXTN.” We encourage you to obtain current quotes for the Exterran common stock and Enerflex common shares.

Because the exchange ratio is fixed, the market value of the merger consideration to Exterran stockholders will fluctuate with the market price of the Enerflex common shares and will not be known at the time that Exterran stockholders vote on the transaction. Based on the closing price of Enerflex common shares of C$7.90 on the TSX on January 21, 2022, the last full trading day prior to that on which the parties entered into the Merger Agreement, the implied value of the merger consideration to Exterran stockholders was approximately C$8.066 per share of Exterran common stock. On September 8, 2022, the latest practicable trading day before the date of this proxy statement/prospectus, the closing price of Enerflex common shares on the TSX was C$6.56 per share, resulting in an implied value of the merger consideration to Exterran stockholders of C$6.6978 per share of Exterran common stock.

At the special meeting of Exterran’s stockholders to be held on October 11, 2022, beginning at 8:00 a.m., Central Time (which we refer to as the “Exterran special meeting”), Exterran stockholders will be asked to consider and vote on (1) a proposal to adopt the Merger Agreement (which we refer to as the “Exterran merger proposal”), (2) a proposal to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Exterran’s named executive officers that is based on or otherwise relates to the transaction and (3) a proposal to approve the adjournment of the Exterran special meeting from time to time to solicit additional proxies in favor 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 this proxy statement/prospectus is timely provided to Exterran stockholders or if otherwise determined by the chairperson of the meeting to be necessary or appropriate (we collectively refer to such Exterran special meeting matters as the “Exterran proposals”). The board of directors of Exterran (which we refer to as the “Exterran board”) unanimously recommends that Exterran stockholders vote “FOR” each of the Exterran proposals at the Exterran special meeting.

We cannot complete the transaction unless the Exterran merger proposal is approved by Exterran stockholders. Your vote on these matters is very important, regardless of the number of shares you own. Whether or not you plan to attend the Exterran special meeting, please promptly mark, sign and date the accompanying proxy card and return it in the enclosed postage-paid envelope or call the toll-free telephone number or use the internet as described in the instructions included with your proxy card in order to authorize the individuals named on your proxy card to vote your shares at the Exterran special meeting.

This proxy statement/prospectus provides you with important information about the Exterran special meeting, the transaction and each of the Exterran proposals. We encourage you to read the entire document carefully, in particular the “Risk Factors” section on page 54 for a discussion of risks relevant to the transaction.

We look forward to the successful completion of the transaction.

As noted above, the Exterran board unanimously recommends that Exterran stockholders vote “FOR” the Exterran merger proposal and each of the other Exterran proposals.

 

Sincerely,

/s/ Andrew J. Way

Andrew J. Way

President and Chief Executive Officer

Exterran Corporation

NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY U.S. STATE OR CANADIAN PROVINCIAL OR TERRITORIAL SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE TRANSACTION OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this proxy statement/prospectus is September 12, 2022, and it is first being mailed to Exterran stockholders on or about September 12, 2022.

 

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ADDITIONAL INFORMATION

Exterran files annual, quarterly and other reports, proxy statements and other information with the U.S. Securities and Exchange Commission (which we also refer to as the “SEC”) and Enerflex files annual and other reports and information with the applicable securities commissions and securities regulatory authorities in each of the provinces and territories of Canada. This proxy statement/prospectus incorporates by reference important business and financial information about Exterran from documents that are not included in or delivered with this proxy statement/prospectus. For a listing of the documents incorporated by reference into this proxy statement/prospectus, see the section entitled “Where You Can Find Additional Information,” on page 370. You can obtain copies of the documents incorporated by reference into this proxy statement/prospectus, without charge, from the SEC’s website at www.sec.gov. You may also obtain copies of documents filed by Enerflex on the System for Electronic Document Analysis and Retrieval (which we refer to as “SEDAR”), the Canadian equivalent of the SEC’s system, at www.sedar.com.

You may also obtain copies of documents filed by Exterran with the SEC from Exterran’s website at www.exterran.com/EXTN/SECFilings and copies of certain documents filed by Enerflex with SEDAR from Enerflex’s website at www.enerflex.com/Investors/index.php.

We are not incorporating the contents of the websites of the SEC, Exterran, Enerflex or any other entity or any other website into this proxy statement/prospectus. We are providing the information about how you can obtain certain documents that are incorporated by reference into this proxy statement/prospectus at these websites only for your convenience.

You can also request copies of such documents incorporated by reference into this proxy statement/prospectus (excluding all exhibits, unless an exhibit has specifically been incorporated by reference into this proxy statement/prospectus), without charge, by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

Exterran Corporation 11000 Equity Drive Houston, Texas 77041 Attention: Corporate Secretary Telephone: (281) 836-7000		Enerflex Ltd. Suite 904, 1331 Macleod Trail S.E. Calgary, Alberta, Canada, T2G 0K3 Attention: Office of the Corporate Secretary and Associate General Counsel, Corporate Telephone: (403) 387-6377

In addition, if you have questions about the transaction or the Exterran special meeting, need additional copies of this proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, you may contact Innisfree M&A Incorporated, Exterran’s proxy solicitor, at the following address and telephone numbers:

INNISFREE M&A INCORPORATED

501 Madison Avenue, 20^th Floor

New York, NY 10022

Stockholders May Call:

Toll-Free at (888) 750-5834 (from the U.S. and Canada)

or +1 (412) 232-3651 (from other locations)

Banks & Brokers May Call Collect: (212) 750-5833

You will not be charged for any of the documents that you request. If you would like to request documents, please do so by October 4, 2022 (which is five business days before the date of the Exterran special meeting) in order to receive them before the Exterran special meeting.

 

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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms part of a registration statement on Form F-4 (File No. 333-263714) filed with the SEC by Enerflex, constitutes a prospectus of Enerflex under Section 5 of the U.S. Securities Act of 1933, as amended (which we refer to as the “U.S. Securities Act”), with respect to the Enerflex common shares to be issued to Exterran stockholders pursuant to the Agreement and Plan of Merger, dated as of January 24, 2022, by and among Enerflex, merger sub, and Exterran, as it may be amended from time to time (which we refer to as the “Merger Agreement”).

This proxy statement/prospectus also constitutes a notice of meeting and a proxy statement of Exterran under Section 14(a) of the U.S. Securities Exchange Act of 1934, as amended (which we refer to as the “U.S. Exchange Act”), with respect to the Exterran special meeting, at which Exterran stockholders will be asked to consider and vote on, among other matters, a proposal to adopt the Merger Agreement.

You should rely only on the information contained in, or incorporated by reference into, this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated September 12, 2022. The information contained in this proxy statement/prospectus is accurate only as of that date 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. Neither the mailing of this proxy statement/prospectus to Exterran stockholders nor the issuance by Enerflex of common shares under the Merger Agreement will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which it is unlawful to make any such offer or solicitation in such jurisdiction.

The information concerning Enerflex and merger sub contained in, or incorporated by reference into, this proxy statement/prospectus has been provided by Enerflex, and information concerning Exterran contained in, or incorporated by reference into, this proxy statement/prospectus has been provided by Exterran.

Unless otherwise specified, currency amounts referenced in this proxy statement/prospectus are in U.S. dollars.

Enerflex intends to mail to Enerflex shareholders a management information circular relating to the special meeting of Enerflex’s shareholders to be held for the purpose of obtaining the approval of a majority of the votes cast by the holders of outstanding Enerflex common shares represented in person or by proxy and entitled to vote on such matter in favor of the issuance of Enerflex common shares in connection with the merger. A copy of such management information circular will be made available on the website maintained by Enerflex (www.enerflex.com/Investors/index.php) and filed on SEDAR (www.sedar.com). The web address of Enerflex has been included as an inactive textual reference only. The Enerflex management information circular and website are not incorporated by reference into, and do not form a part of, this proxy statement/prospectus.

 

- 4 -

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 C$1.3116 = US$1.00.

All references in this proxy statement/prospectus to “$” or “US$” are to U.S. dollars, unless otherwise indicated. All references in this proxy statement/prospectus to “C$” are to Canadian 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 herein.

 

		Period End				Average				Low				High
Year ended (C$ per US$)
2021(1)			1.2740				1.2535				1.2040				1.2933
2020(2)			1.2732				1.3415				1.2718				1.4496
2019(3)			1.2988				1.3269				1.2988				1.36
2018(4)			1.3642				1.2957				1.2288				1.3642
2017(5)			1.2545				1.2986				1.2128				1.3743
Month ended (C$ per US$)
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

 

(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 -

NOTICE OF SPECIAL MEETING OF EXTERRAN STOCKHOLDERS TO BE HELD ON OCTOBER 11, 2022

YOUR VOTE IS VERY IMPORTANT

To the Stockholders of Exterran Corporation:

Notice is hereby given that Exterran Corporation (which we refer to as “Exterran”) will hold a special meeting of its stockholders (which we refer to as the “Exterran special meeting”) virtually via the internet on October 11, 2022, beginning at 8:00 am, Central Time.

In light of the ongoing COVID-19 (coronavirus) pandemic, the Exterran special meeting will be held in a virtual meeting format only, via live audio webcast, and there will not be a physical meeting location. You will be able to attend the Exterran special meeting online, access the stocklist, submit questions and vote your shares electronically at the meeting by visiting www.proxydocs.com/EXTN (which we refer to as the “special meeting website”).

The Exterran special meeting will be held for the following purposes:

 

•

to consider and vote on a proposal (which we refer to as the “Exterran merger proposal”) to adopt the Agreement and Plan of Merger, dated as of January 24, 2022 (which, as it may be amended from time to time, we refer to as the “Merger Agreement”), by and among Enerflex Ltd. (which we refer to as “Enerflex”), Enerflex US Holdings Inc., a Delaware corporation and direct wholly owned subsidiary of Enerflex (which we refer to as “merger sub”), and Exterran;

 

•

to consider and vote on a proposal (which we refer to as the “Exterran compensation proposal”) to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Exterran’s named executive officers that is based on or otherwise relates to the transactions contemplated by the Merger Agreement; and

 

•

to consider and vote on a proposal (which we refer to as the “Exterran adjournment proposal”) to approve the adjournment of the Exterran special meeting from time to time to solicit additional proxies in favor 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 this 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 will transact no other business at the Exterran special meeting, except, subject to obtaining the prior written consent of Enerflex, such business as may properly be brought before the Exterran special meeting or any adjournment or postponement thereof by or at the direction of the Exterran board of directors (which we refer to as the “Exterran board”). The accompanying proxy statement/prospectus, including the Merger Agreement attached thereto as Annex A, contains further information with respect to these matters.

Exterran stockholders of record at the close of business on September 7, 2022 (which we refer to as the “record date”) will be entitled to notice of and to vote at the Exterran special meeting or any adjournment or postponement of the Exterran special meeting.

The Exterran board has unanimously approved and declared advisable the Merger Agreement and the transactions contemplated by the Merger Agreement, including the merger of merger sub with and into Exterran on the terms and subject to the conditions set forth in the Merger Agreement (which we refer to as the “merger” or the “transaction”). The Exterran board unanimously recommends that Exterran stockholders vote “FOR” the Exterran merger proposal, “FOR” the Exterran compensation proposal and “FOR” the Exterran adjournment proposal.

 

- 6 -

Your vote is very important, regardless of the number of shares that you own. The parties cannot complete the transactions contemplated by the Merger Agreement, including the transaction, without approval of the Exterran merger proposal. Assuming a quorum is present, the approval of the Exterran merger proposal requires the affirmative vote of at least a majority of the outstanding shares of Exterran common stock.

Whether or not you plan to attend the Exterran special meeting via the special meeting website, Exterran urges you to please promptly mark, sign and date the accompanying proxy card and return it in the enclosed postage-paid envelope, which requires no postage if mailed in the United States, or to submit your votes electronically by calling the toll-free telephone number or using the internet as described in the instructions included with the accompanying proxy card, so that your shares may be represented and voted at the Exterran special meeting. If you hold your shares through a broker, bank or other nominee in “street name” (instead of as a registered holder), please follow the instructions on the voting instruction form provided by your bank, broker or nominee to vote your shares. The list of Exterran stockholders entitled to vote at the Exterran special meeting will be available at our headquarters for examination by any Exterran stockholder for any purpose germane to the meeting for a period of at least 10 days prior to the Exterran special meeting. If you would like to examine the list of Exterran stockholders of record, please contact Exterran’s Corporate Secretary at (281) 836-7000 to schedule an appointment or request access. If our headquarters are closed for health and safety reasons related to the coronavirus pandemic during such period, the list of stockholders will be made available for examination electronically upon request to our Corporate Secretary, subject to our satisfactory verification of stockholder status. The list of Exterran stockholders entitled to vote at the Exterran special meeting will also be available for examination by any Exterran stockholder during the Exterran special meeting via the special meeting website at www.proxydocs.com/EXTN.

If you choose to virtually attend the Exterran special meeting and/or vote your shares during the Exterran special meeting, you will need the control number located on your proxy card. If you hold your shares in “street name”, you must obtain a legal proxy in order to virtually attend the Exterran special meeting and vote your shares during the Exterran special meeting.

If you have any questions about the transaction, please contact Exterran at (281) 836-7000 or write to Exterran Corporation, 11000 Equity Drive, Houston, Texas 77041, Attention: Corporate Secretary.

If you have any questions about how to vote or direct a vote in respect of your shares of Exterran common stock, you may contact Exterran’s proxy solicitor, Innisfree M&A Incorporated, toll-free at 1 (888) 750-5834 (from the U.S. and Canada) or 1 (412) 232-3651 (from other locations). Banks and brokers may call collect at 1 (212) 750-5833.

By Order of the Board of Directors,

Kelly M. Battle

Vice President, General Counsel and Corporate Secretary

Exterran Corporation

Houston, Texas

Dated: September 12, 2022

 

- 7 -

TABLE OF CONTENTS

 

FREQUENTLY USED TERMS			11
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND THE EXTERRAN SPECIAL MEETING			21
SUMMARY			34
Information about the Companies			34
Summary of Risk Factors			35
The Transaction and the Merger Agreement			38
Merger Consideration			38
Exterran Board of Directors’ Recommendation			38
Comparative Per Share Market Price Information			39
Opinion of Exterran’s Financial Advisor			39
The Exterran Special Meeting			39
The Enerflex Special Meeting and Shareholder Approval			41
Listing of Enerflex Common Shares			42
Delisting and Deregistration of Exterran Common Stock			42
Debt Financing			42
Material U.S. Federal Income Tax Consequences			43
Certain Canadian Federal Income Tax Consequences			43
Accounting Treatment of the Transaction			44
Regulatory Approvals Required for the Transaction			44
Treatment of Exterran Equity Awards			44
No Appraisal Rights			45
The Voting Agreements			45
Conditions to the Transaction			46
No Solicitation			48
Financing			49
Termination or Abandonment of the Merger Agreement			50
Your Rights as an Enerflex Shareholder Will Be Different from Your Rights as an Exterran Stockholder			52
Interests of Exterran’s Directors and Executive Officers in the Transaction			52
Litigation Relating to the Merger			53
RISK FACTORS			54
Risks Relating to the Transaction			54
Risks Related to Exterran’s Business			68
Risks Relating to Investing in and Ownership of the Enerflex Common Shares			81
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			84
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION			86
THE EXTERRAN SPECIAL MEETING			88
Date, Time and Place of the Exterran Special Meeting			88
Purpose of the Exterran Special Meeting			88
Recommendation of the Exterran Board			88
Record Date and Outstanding Shares of Exterran Voting Stock			89
Quorum; Abstentions and Broker  Non-Votes			89
Required Vote			89
Adjournment and Postponement			91
Voting by Directors and Executive Officers			91
Voting by Proxy or in Person (Including Virtually)			91
Revocability of Proxies and Changes to an Exterran Stockholder’s Vote			92
Tabulation of Votes			93

 

- 8 -

Solicitation of Proxies; Expenses of Solicitation			93
Householding			93
Assistance			94
THE EXTERRAN MERGER PROPOSAL			95
Transaction Structure			95
Merger Consideration			95
Background of the Transaction			96
Recommendation of the Exterran Board; Exterran’s Reasons for the Transaction			108
Enerflex’s Reasons for the Transaction			113
Opinion of the Financial Advisor to Exterran – Opinion of Wells Fargo Securities, LLC			116
Exterran Unaudited Prospective Financial Information			123
Listing of Enerflex Common Shares			128
Delisting and Deregistration of Exterran Common Stock			129
Interests of Exterran’s Directors and Executive Officers in the Transaction			129
The Enerflex Special Meeting and Shareholder Approval			133
Accounting Treatment of the Transaction			133
Regulatory Approvals Required for the Transaction			134
No Appraisal Rights			134
Litigation Relating to the Merger			135
Restrictions on Resales of Enerflex Common Shares Received in the Transaction			135
Exchange of Shares in the Merger			135
Dividend Policy			136
Debt Financing			136
Material U.S. Federal Income Tax Consequences			137
Certain Canadian Federal Income Tax Consequences			141
THE ADVISORY COMPENSATION PROPOSAL			148
THE EXTERRAN ADJOURNMENT PROPOSAL			149
Enerflex Ltd.			150
Enerflex US Holdings Inc.			151
Exterran Corporation			151
Information Concerning the Combined Exterran			151
THE MERGER AGREEMENT			152
THE VOTING AGREEMENTS			183
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION			186
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION			188
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS			190
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS			192
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ENERFLEX			201
ADDITIONAL INFORMATION ABOUT ENERFLEX			269
Description of Business			269
Management of Enerflex			280
Audit Committee			286
Compensation of Directors and Officers of Enerflex			287
Certain Relationships and Related Party Transactions			330
Description of Enerflex’s Share Capital			330
BENEFICIAL OWNERSHIP OF SECURITIES			332
Security Ownership of Certain Beneficial Owners and Management of Enerflex			334
COMPARISON OF RIGHTS OF ENERFLEX SHAREHOLDERS AND EXTERRAN STOCKHOLDERS			335
General			335
Material Differences Between the Rights of Shareholders of Enerflex and Stockholders of Exterran			335

 

- 9 -

LEGAL MATTERS			368
EXPERTS			368
Enerflex			368
Exterran			368
ENFORCEABILITY OF CIVIL LIABILITIES			368
OTHER MATTERS			368
FUTURE SHAREHOLDER PROPOSALS			368
Exterran			368
HOUSEHOLDING OF PROXY MATERIALS			369
WHERE YOU CAN FIND ADDITIONAL INFORMATION			370
Incorporation of Certain Documents by Reference			370
ENERFLEX LTD.			F-1
INDEX TO FINANCIAL STATEMENTS			F-1
ANNEX A Agreement and Plan of Merger			A-1
ANNEX B Opinion of Wells Fargo			B-1
ANNEX C Supporting Stockholders Voting Agreement			C-1
ANNEX D D&O Voting Agreement			D-1

 

- 10 -

FREQUENTLY USED TERMS

Certain terms that are defined in and frequently used throughout this proxy statement/prospectus may be helpful for you to have in mind at the outset. Unless otherwise specified or if the context so requires, the following terms have the meanings set forth below for purposes of this proxy statement/prospectus:

 

•

“Absolute EBIT” means EBIT expressed as a dollar value.

 

•

“affiliate” refers, 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.

 

•

“alternative proposal” refers to any written inquiry, proposal, offer or indication of interest made by any third party 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 authorities” refers to the relevant competition authorities in the jurisdictions listed as set forth in the Merger Agreement.

 

•

“asset-based facility” refers to a credit facility of up to $52.5 million U.S. dollars secured by certain assets of a subsidiary of Enerflex.

 

•

“AST” means American Stock Transfer and Trust Company, LLC, the registrar and transfer agent of the shares of Exterran common stock.

 

•

“bank facility” refers to the syndicated revolving credit facilities entered into pursuant to a credit agreement made as of June 1, 2011, amended and restated as of June 30, 2014, and further amended and restated as of May 2, 2019, as amended by the first amending agreement made as of July 16, 2021, among Enerflex, Enerflex Australasia Holdings Pty Ltd., the Toronto Dominion Bank, the Bank of Nova Scotia, and certain other lenders.

 

•

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

 

•

“Canadian Securities Administrators” means the Alberta Securities Commission and any other applicable securities commission or securities regulatory authority of a province or territory of Canada.

 

•

“Canadian tax act” refers to the Income Tax Act (Canada), R.S.C., 1985, c.1 (5th Supp.) and the regulations thereunder.

 

•

“capital employed” means debt plus equity less cash.

 

•

“CBCA” refers to the Canada Business Corporations Act, R.S.C., 1985, c. C-44, as amended.

 

•

“closing” refers to the closing of the transaction.

 

- 11 -

•

“closing date” refers to the date on which the closing of the transaction actually occurs.

 

•

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

 

•

“combined company” refers to Enerflex, as combined with Exterran, after the closing of the merger.

 

•

“compliant” means, with respect to the required financing information, that: (a) the required financing information does not contain any untrue statement of a material fact regarding Exterran or any of its subsidiaries or omit to state any material fact regarding Exterran or any of its subsidiaries necessary in order to make the required financing information not misleading, in light of the circumstances under which the statements contained in the required financing information are made; (b) the financial statements described in clause (a) of the definition of “required financing information” are compliant in all material respects with all requirements of Regulation S-X promulgated by the SEC applicable to offerings of debt securities on a registration statement on Form S-1 that are applicable to such financial statements (other than such provisions for which compliance is not customary in a Rule 144A offering of high yield debt securities); (c) Exterran’s independent auditors will not have withdrawn, or advised Exterran that they intend to withdraw, any audit opinion with respect to any audited financial statements contained in the required financing information, in which case such financial information will not be deemed to be compliant pursuant to this clause (c) (unless and until a new unqualified audit opinion has been received in respect thereof from such auditors or another nationally recognized independent registered accounting firm of national standing); (d) in connection with any debt financing involving the offering of debt securities, Exterran’s independent registered public accounting firm will have consented to the use of its audit opinions with respect to any required financing information audited by such firm and will have confirmed that they are prepared to issue customary comfort letters, including customary negative assurance, upon the “pricing” of such debt securities and throughout the period ending on the last day of the marketing period (subject to the completion by such accountants of customary procedures relating thereto); and (e) Exterran will have not been informed by such independent registered public accounting firm of Exterran that it is required to restate, and Exterran has not restated (or is not actively considering any such restatement; provided, that such required financing information shall be deemed to be compliant pursuant to this clause (e) when Exterran informs Enerflex in writing that it has concluded that no restatement is required in accordance with GAAP) any financial statements contained in the required financing information; provided, further, that if any such restatement occurs, the required financing information will be deemed to be compliant pursuant to this clause (e) if and when such restatement has been completed and the relevant financial statements have been amended and delivered to Enerflex.

 

•

“credit facility” refers to 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, as administrative agent, and the other parties thereto (as the same may be amended, restated or otherwise modified from time to time).

 

•

“debt commitment letters” refers to 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 letters, 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.

 

•

“DSU” means deferred share units—a notional unit with a value equal to an Enerflex share that can only be redeemed when the individual leaves Enerflex.

 

•

“DSU plan” means the Enerflex deferred share unit plan, as amended from time to time.

 

- 12 -

•

“EBIT” means earnings before interest and taxes for the trailing 12-month period.

 

•

“EBIT %” means EBIT expressed as a percent of revenue.

 

•

“effective time” refers to such time as the certificate of merger is 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 DGCL.

 

•

“EMT” means the executive management team of Enerflex, and includes the NEOs.

 

•

“end date” refers to October 24, 2022; provided, that to the extent the debt financing has not been obtained or the condition to obtain the antitrust authorizations required to be obtained with respect to the transactions contemplated by the Merger Agreement has not been satisfied on or prior to October 24, 2022, 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” refers to Enerflex Ltd., a corporation formed under the CBCA.

 

•

“Enerflex board” refers to the board of directors of Enerflex.

 

•

“Enerflex common shares” refers to common shares in the capital of Enerflex.

 

•

“Enerflex disclosure schedules” refers to the disclosure schedules to the Merger Agreement provided by Enerflex.

 

•

“Enerflex shareholder approval” refers to the affirmative vote of a majority of the votes cast by the holders of outstanding Enerflex common shares represented in person or by proxy and entitled to vote on such matter in favor of the approval of the issuance of Enerflex common shares at the Enerflex special meeting, or any adjournment or postponement thereof, in accordance with the rules and policies of the CBCA and the TSX.

 

•

“Enerflex shareholders” refers to the holders of Enerflex common shares.

 

•

“Enerflex special meeting” refers to the special meeting of Enerflex shareholders to be held on October 11, 2022, beginning at 9:00 a.m., Mountain Time and any adjournments or postponements thereof.

 

•

“ESPP” means the Enerflex employee share purchase plan.

 

•

“excepted stockholder” refers to an Exterran stockholder who would be treated as a “five-percent transferee shareholder” of Enerflex within the meaning of Treasury Regulations Section 1.367(a)-3(c)(5)(ii) following the transaction who does not enter into a five-year gain recognition agreement in the form provided in Treasury Regulations Section 1.367(a)-8.

 

•

“exchange agent” refers to the transfer agent or bank or trust company designated by Enerflex and merger sub to serve as exchange agent under the Merger Agreement and approved in advance by Exterran in writing (which approval will not be unreasonably withheld, conditioned or delayed).

 

•

“exchange ratio” means 1.021.

 

•

“Exterran” refers to Exterran Corporation, a Delaware corporation.

 

•

“Exterran adjournment proposal” refers to the proposal to approve the adjournment of the Exterran special meeting from time to time to solicit additional proxies in favor 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 this 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” refers to the board of directors of Exterran.

 

- 13 -

•

“Exterran common stockholders” refers to the Exterran stockholders.

 

•

“Exterran compensation proposal” refers to the proposal that Exterran stockholders will vote on at the Exterran special meeting to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Exterran’s named executive officers that is based on or otherwise relates to the transactions contemplated by the Merger Agreement.

 

•

“Exterran equity awards” collectively refers to the Exterran restricted share awards, Exterran RSU awards, and Exterran performance share awards.

 

•

“Exterran intellectual property” refers to all the intellectual property that Exterran and its subsidiaries own or have a written, valid and enforceable right and license to use, which intellectual property is necessary for the operation of their respective businesses conducted as of the date of the Merger Agreement.

 

•

“Exterran merger proposal” refers to the proposal to adopt the Merger Agreement that Exterran stockholders will vote on at the Exterran special meeting.

 

•

“Exterran performance share award” refers to an award of restricted stock units in respect of shares of Exterran common stock granted subject to performance targets.

 

•

“Exterran proposals” collectively refers to the Exterran merger proposal, the Exterran compensation proposal and the Exterran adjournment proposal.

 

•

“Exterran recommendation” refers to Exterran board’s recommendation to the Exterran stockholders to adopt the Merger Agreement and the transactions contemplated by the Merger Agreement.

 

•

“Exterran restricted share award” refers to an award of shares of Exterran common stock granted subject to any vesting, forfeiture or other lapse restrictions.

 

•

“Exterran RSU award” refers to an award of restricted stock units (excluding any Exterran performance share award) in respect of shares of Exterran common stock.

 

•

“Exterran special meeting” refers to the special meeting of Exterran stockholders to be held on October 11, 2022, beginning at 8:00 a.m., Central Time and including any adjournment or postponement thereof, for the purpose of obtaining the Exterran stockholders approval of the Exterran proposals in respect of the transaction.

 

•

“Exterran stockholder approval” refers to the affirmative vote of the holders of a majority of the outstanding shares of Exterran common stock in favor of the adoption of the Merger Agreement.

 

•

“Exterran stockholders” collectively refers to the holders of Exterran common stock.

 

•

“financing amounts” refers, collectively, to the obligations of Enerflex and its affiliates that are required to be satisfied on the closing date pursuant to the Merger Agreement and the initial debt commitment letter, including the payment of any fees, expenses and other amounts of, or payable by, Enerflex or merger sub or Enerflex’s other affiliates on the closing date in connection with the merger and the debt financing contemplated by the initial debt commitment letter and for any repayment or refinancing of the outstanding indebtedness of Exterran, Enerflex and/or their respective subsidiaries in accordance with the Merger Agreement.

 

•

“financing parties” refers to each person (including each agent, arranger, lender, underwriter, investor or other entity that has committed to provide or arrange or otherwise entered into agreements in connection with any part of the debt financing or any other financing in connection with the transactions contemplated by the Merger Agreement) that at the applicable time has committed, or proposes, to provide or arrange any part of the debt financing or such other financing (including, for greater certainty, any alternative financing in accordance with the Merger Agreement) to Enerflex or any of its subsidiaries pursuant to a debt commitment letter, a definitive agreement or other agreement in connection with the transactions contemplated by the Merger Agreement, as applicable, and their respective representatives, affiliates and their, and their respective, affiliates’ officers, directors,

 

- 14 -

employees, controlling persons, agents and representatives and their respective successors and assigns; provided, that neither Enerflex nor any of its affiliates will be a financing party.

 

•

“Form F-4” refers to the registration statement on Form F-4 pursuant to which the offer and sale of Enerflex common shares in connection with the merger will be registered pursuant to the U.S. Securities Act and in which this proxy statement/prospectus is included, together with any supplements thereto.

 

•

“GAAP” refers to generally accepted accounting practices in the U.S.

 

•

“gEPS” means growth in earnings per Enerflex share.

 

•

“governmental entity” refers to any United States or foreign, state, provincial, territorial or local governmental or regulatory agency, commission, court, arbitrator, body, entity or authority.

 

•

“HRC committee” means the human resources and compensation committee of the Enerflex board.

 

•

“IFRS” refers to the international financial reporting standards as issued by the International Accounting Standards Board.

 

•

“indebtedness” means, with respect to either Enerflex or Exterran, all borrowings (or funded indebtedness), whether by loans of cash or issuance and sale of debt securities.

 

•

“initial debt commitment letter” refers to the fully executed debt commitment letter, dated as of the date of the Merger Agreement, by and among Enerflex and the financing parties specified therein.

 

•

“IRS” refers to the U.S. Internal Revenue Service.

 

•

“lien” means a lien, mortgage, pledge, security interest, charge, title defect, adverse claims and interests, option to purchase or other encumbrance of any kind or nature whatsoever, but excluding any license of intellectual property or any transfer restrictions of general applicability as may be provided under the U.S. Securities Act, the “blue sky” laws of the various states of the United States or similar law of other applicable jurisdictions.

 

•

“management information circular” refers to the management information circular relating to the Enerflex special meeting (together with any amendments or supplements thereto).

 

•

“marketing period” refers to the first period of fifteen (15) consecutive calendar days after the date of the Merger Agreement (a) commencing on the date that is three (3) calendar days after the date on which Enerflex will have received the required financing information from Exterran and (b) throughout such period the required financing information will remain compliant; provided that if the required financing information fails to be compliant at any time during the marketing period, then the marketing period will not be deemed to have commenced and the marketing period will only commence when the required financing information is again compliant; provided, further that such fifteen (15) consecutive calendar day period will either be completed on or prior to August 19, 2022, or commence no earlier than September 6, 2022, and will not include, for purposes of determining the number of consecutive calendar days, July 1, 2022 through July 4, 2022. If Exterran in good faith reasonably believes that it has delivered the required financing information, it may deliver to Enerflex written notice to that effect, stating when it believes it completed the applicable delivery, in which case the required financing information will be deemed to have been delivered, subject to the provisos in the first sentence of this definition, on the date of the delivery of the applicable notice to Enerflex (and, if the requirements set forth above as to being compliant are satisfied, the marketing period will be deemed to have commenced on such date), in each case, unless Enerflex in good faith reasonably believes that Exterran has not completed delivery of the required financing information and within two (2) business days after receipt of such notice, Enerflex specifies in writing to Exterran, in reasonable detail, what required financing information was not delivered.

 

•

“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

 

- 15 -

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 United States, as applicable, or any other governmental entity or the declaration by Canada or the United States, 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 International Financial Reporting Standards or 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” refers to the merger of merger sub with and into Exterran.

 

•

“Merger Agreement” means the Agreement and Plan of Merger, dated as of January 24, 2022, by and among Enerflex, merger sub, and Exterran, as it may be amended from time to time.

 

•

“merger sub” refers to Enerflex US Holdings Inc., a Delaware corporation and a direct wholly-owned subsidiary of Enerflex.

 

•

“Nasdaq” means Nasdaq, Inc.

 

•

“NCG Committee” means the nominating and corporate governance committee of the Enerflex board.

 

•

“NEO” means named executive officer.

 

- 16 -

•

“non-qualified deferred compensation plan” refers to Exterran’s non-qualified deferred compensation plan that will be terminated no later than the day immediately prior to the closing date, in accordance with the terms of the Merger Agreement.

 

•

“note purchase agreement” refers to any one of note purchase agreements among Enerflex and a series of private placement lenders dated June 22, 2011 and dated December 15, 2017 with respect to the senior notes.

 

•

“NYSE” refers to the New York Stock Exchange.

 

•

“option plan” means the Enerflex 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 option plan approved by the Enerflex shareholders on May 8, 2020.

 

•

“Options” means the options to purchase Enerflex common shares granted under the option plan.

 

•

“ordinary course of business” means, with respect to an action taken by any person, that such action is in the ordinary course of business of such person, acting in its own interest as an independent enterprise, consistent with past custom and practice, taking into account any changes to such practices as may have occurred as a result of the outbreak of COVID- 19, including compliance with any COVID-19 measures, and any actions reasonably taken or not taken in response to exigent circumstances.

 

•

“organizational documents” means (a) with respect to any person that is a corporation, its articles or certificate of incorporation, memorandum and articles of association, as applicable, and bylaws, or comparable documents, (b) with respect to any person that is a partnership, its certificate of partnership and partnership agreement, or comparable documents, (c) with respect to any person that is a limited liability company, its certificate of formation and limited liability company or operating agreement, or comparable documents, (d) with respect to any person that is a trust or other entity, its declaration or agreement of trust or other constituent document or comparable documents and (e) with respect to any other person that is not an individual, its comparable organizational documents.

 

•

“permitted lien” means (a) any lien for taxes or governmental assessments, charges or claims of payment not yet due or payable, being contested in good faith or for which accruals or reserves have been established in accordance with GAAP or IFRS, as applicable, (b) any lien that is a carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other similar lien arising in the ordinary course of business for amounts that are not yet due or that do not materially detract from the value of or materially interfere with the use of any of the assets, (c) zoning, entitlement, building, and other land use regulations imposed by governmental entities having jurisdiction over such person’s owned or leased real property, which are not violated by the current use and operation of such real property, (d) covenants, conditions, restrictions, easements, and other similar non-monetary matters of record affecting title to such person’s owned or leased real property, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such person’s businesses or that are listed on the applicable title documentation that was delivered to parent at least five (5) business days prior to closing, (e) liens the existence of which are disclosed in the notes to the most recent consolidated balance sheet of Exterran or Enerflex, as applicable, or the notes thereto (or securing liabilities reflected on such balance sheet), (f) any right of way or easement related to public roads and highways, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such person’s businesses, and (g) liens arising under workers’ compensation, unemployment insurance, social security, retirement, and similar legislation.

 

•

“PSEs” means the phantom share entitlements issued under the PSE plan—a notional unit with a value equal to the fair market value of an Enerflex share. PSEs represent the right only to receive a cash payment in accordance with the terms and conditions of the PSE plan.

 

- 17 -

•

“PSE plan” means the amended and restated phantom share plan of Enerflex, as amended from time to time.

 

•

“PSUs” means the Enerflex performance share units issued under the PSU plan—a notional unit with a value equal to the fair market value of an Enerflex share. The value received is contingent upon meeting predetermined performance targets and the fair market value at the time of payout.

 

•

“PSU plan” means the performance share unit plan of Enerflex, as amended from time to time.

 

•

“RBC” refers to RBC Dominion Securities, Inc., a financial advisor to Enerflex in connection with the transaction.

 

•

“record date” refers to September 7, 2022.

 

•

“representatives” refers to the officers, employees, accountants, consultants, legal counsel, financial advisors and agents and other representatives of a given party.

 

•

“required financing information” refers to (a) the financial statements of Exterran required by the initial debt commitment letter as of the closing date, (b) all other financial statements and operating, business and other financial data solely regarding Exterran and its subsidiaries of the type and form that are customarily included in an offering memorandum to consummate a Rule 144A-for-life offering of non-convertible, high yield debt securities under Rule 144A promulgated under the 1933 Act (which information is understood not to include (i) financial statements, information and other disclosures required by Rules 3-05, 3-09, 3-10 or 3-16 of Regulation S-X, the Compensation Discussion and Analysis or other information required by Item 402 of Regulation S-K or the executive compensation and related person disclosure rules related to SEC Release Nos. 33-8732A, 34-54302A and IC-27444A, (ii) financial statements or other financial data (including selected financial data) for any period earlier than December 31, 2019, and (iii) other information or financial data customarily excluded from a Rule 144A offering memorandum; provided that Exterran will have no obligation to provide (A) any financial information concerning Exterran that Exterran does not maintain in the ordinary course of business, (B) any other information with respect to Exterran not reasonably available to Exterran under its current reporting systems or (C) trade secrets or information to the extent that the provision thereof would violate any law or obligation of confidentiality binding upon, or waive any privilege that may be asserted by, Exterran or any of Exterran’s affiliates unless any such information referred to in clause (A), (B) or (C), (1) is financial information contemplated by the foregoing clause (a) or (2) is required to ensure that the offering memorandum would not contain any untrue statement of a material fact or omit a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading), (c) if the marketing period commences prior to the filing date of an annual report on Form 10-K or a quarterly report on Form 10-Q of Exterran but after the end of its corresponding fiscal year or quarter, as applicable, customary “flash” or “recent developments” data, and (d) such other pertinent and customary information regarding Exterran and its subsidiaries as may be reasonably requested by Enerflex or any of its subsidiaries to the extent necessary to receive from Exterran’s independent accountants customary “comfort” (including “negative assurance” comfort), together with drafts of customary comfort letters that such independent accountants are prepared to deliver upon the “pricing” of any securities, and the closing of the offering thereof with respect to the historical financial information to be included in such offering memorandum.

 

•

“ROCE” means a ratio used to measure operating performance and the efficiency of Enerflex’s capital allocation process. The ratio is calculated by taking EBIT for the 12-month trailing period divided by average capital employed for the trailing four quarters.

 

•

“RSUs” means the restricted share units issued under the RSU plan—a notional unit with a value equal to the fair market value of an Enerflex share. The value received is contingent upon meeting vesting requirements and the fair market value at the time of payout.

 

•

“RSU plan” means the restricted share unit plan of Enerflex, as amended from time to time.

 

- 18 -

•

“SEC” refers to the U.S. Securities and Exchange Commission.

 

•

“SEC’s website” refers to www.sec.gov.

 

•

“SEDAR” refers to the System for Electronic Document Analysis and Retrieval of the Canadian Securities Administrators.

 

•

“SEDAR’s website” refers to www.sedar.com.

 

•

“senior notes” refers collectively to the US$105.0 million and C$15.0 million seven-year notes maturing on December 15, 2024 issued by Enerflex under the note purchase agreement dated December 15, 2017; and the US$70.0 million and C$30.0 million ten-year notes maturing on December 15, 2027 issued by Enerflex under the note purchase agreement dated December 15, 2017.

 

•

“special meeting website” refers to the website located at www.proxydocs.com/EXTN, where Exterran stockholders will be able to attend the Exterran special meeting online and vote their Exterran shares of common stock electronically.

 

•

“STI plan” or “STIP” means the short-term incentive plan pursuant to which Enerflex may grant short-term variable pay to its executives.

 

•

“subsidiaries” means, with respect to any person, any corporation, limited liability company, partnership or other organization, whether incorporated or unincorporated or person 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” refers to an unsolicited, bona fide written alternative proposal, substituting in the definition of alternative proposal “20%” for “80%” and “80%” for “20%” in each place each such phrase appears, made after January 24, 2022, that the applicable party’s board of directors determines in good faith, after consultation with the applicable party’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, would, if consummated, result in a transaction (A) that is more favorable to such party’s shareholders or stockholders, as applicable, 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 such party’s board of directors.

 

•

“surviving corporation” refers to Exterran as the company that, under the Merger Agreement, survives the merger under Delaware law as a wholly owned subsidiary of Enerflex at the effective time.

 

•

“takeover statute” refers to any “fair price,” “moratorium,” “control share acquisition,” “business combination” or other form of anti-takeover statute or regulation that is applicable to the Merger Agreement or the other transactions contemplated by the Merger Agreement.

 

•

“total purchase consideration” collectively refers to the merger consideration, and other amounts as defined as consideration by the acquisition method of accounting.

 

•

“transaction” refers to the merger as contemplated under the Merger Agreement.

 

•

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

 

•

“TRIR” means the total recordable injury rate calculated by multiplying the number of recordable injuries in a calendar year by 200,000 (100 employees working 2,000 hours per year) and dividing the value by the total hours worked in the year.

 

•

“TSR” means total shareholder return.

 

- 19 -

•

“TSX” refers to the Toronto Stock Exchange.

 

•

“U.S.” refers to the United States of America.

 

•

“U.S. Exchange Act” refers to the U.S. Securities Exchange Act of 1934, as amended.

 

•

“U.S. Securities Act” refers to the U.S. Securities Act of 1933, as amended.

 

•

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

 

- 20 -

QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND THE EXTERRAN SPECIAL MEETING

The following are brief answers to certain questions that you, as a stockholder of Exterran, may have regarding the transaction and the other matters being considered at the Exterran special meeting. You are urged to carefully read this proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus in their entirety because this section may not provide all the information that is important to you regarding these matters. Please refer to the section entitled “Summary” on page 34 for a summary of important information regarding the Merger Agreement and the transactions contemplated thereby. Additional important information is contained in the annexes to, and the documents incorporated by reference into, this proxy statement/prospectus. You may obtain the information incorporated by reference in this proxy statement/prospectus, without charge, by following the instructions under the section entitled “Where You Can Find Additional Information,” on page 370.

 

Q:	Why am I receiving this proxy statement/prospectus?

 

A:

You are receiving this proxy statement/prospectus because Exterran has agreed to be acquired by Enerflex through a merger of merger sub with and into Exterran, with Exterran surviving as a wholly owned subsidiary of Enerflex. The Merger Agreement, which governs the terms and conditions of the transaction, is attached to this proxy statement/prospectus as Annex A.

Exterran is sending these materials to Exterran stockholders to help them decide how to vote their shares with respect to the adoption of the Merger Agreement, among other important matters.

 

Q:	What matters am I being asked to vote on?

 

A:	In order to complete the transaction, among other things, Exterran stockholders must approve the proposal to adopt the Merger Agreement in accordance with the DGCL.

Exterran is holding the Exterran special meeting to obtain approval of the Exterran merger proposal. At the Exterran special meeting, Exterran stockholders will also be asked to consider and vote on:

 

•

a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Exterran’s named executive officers that is based on or otherwise relates to the transactions contemplated by the Merger Agreement; and

 

•

a proposal to approve the adjournment of the Exterran special meeting from time to time to solicit additional proxies in favor 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 this proxy statement/prospectus is timely provided to Exterran stockholders or if otherwise determined by the chairperson of the meeting to be necessary or appropriate.

Your vote is very important, regardless of the number of shares that you own. The approval of the Exterran merger proposal is a condition to the obligations of the parties to complete the transaction. Neither the approval of the Exterran compensation proposal nor the approval of the Exterran adjournment proposal is a condition to the obligations of the parties to complete the transaction.

 

Q:	When and where will the Exterran special meeting take place?

 

A:

The Exterran special meeting will be held virtually via the internet on October 11, 2022, beginning at 8:00 am, Central Time. The Exterran special meeting will be held solely via live audio webcast and there will not be a physical meeting location. Exterran stockholders will be able to attend the Exterran special

 

- 21 -

meeting online and vote their shares electronically during the meeting by visiting www.proxydocs.com/EXTN. If you choose to attend the Exterran special meeting and vote your shares during the Exterran special meeting, you will need the control number located on your proxy card as described in the section entitled “The Exterran Special Meeting— Date, Time and Place of the Exterran Special Meeting” on page 39.

Even if you plan to attend the Exterran special meeting, Exterran recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to or become unable to attend the Exterran special meeting.

If you hold your shares through a bank, broker or other nominee in “street name” instead of as a registered holder, you must follow the voting instructions provided by your bank, broker or other nominee in order to vote your shares. Your voting instructions must be received by your bank, broker or other nominee prior to the deadline set forth in the information from your bank, broker or other nominee on how to submit voting instructions. If you do not provide voting instructions to your bank, broker or other nominee with respect to a proposal, your shares of Exterran common stock will not be voted on that proposal as your bank, broker or other nominee does not have discretionary authority to vote on any of the Exterran proposals; see the section entitled “The Exterran Special Meeting—Quorum; Abstentions and Broker Non-Votes,” on page 89.

If you wish to attend the special meeting to personally vote your shares held in “street name” via the special meeting website, you will need to obtain a proxy from the holder of record (i.e. your broker, bank or other nominee); a proxy is not the form of proxy card enclosed with this proxy statement. Please follow the instructions from your broker, bank or other nominee included with these proxy materials, or contact that organization to request a proxy form.

 

Q:	Does my vote matter?

 

A:	Yes, your vote is very important, regardless of the number of shares that you own. The transaction cannot be completed unless, among other things, the Exterran merger proposal is approved by Exterran stockholders.

A failure to return or submit your proxy or to vote at the Exterran special meeting as provided in this proxy statement/prospectus will have the same effect as a vote “AGAINST” the Exterran merger proposal. Assuming a quorum is present, the failure to return or submit your proxy and to attend the Exterran special meeting will have no effect on the Exterran compensation proposal or the Exterran adjournment proposal. The failure of any shares present or represented by proxy at the Exterran special meeting to vote affirmatively or negatively on the Exterran compensation proposal or, assuming a quorum is present, the Exterran adjournment proposal will have no effect on such proposal. If a quorum is not present, the failure of any shares present or represented by proxy at the Exterran special meeting to vote affirmatively on the Exterran adjournment proposal will be treated as a vote “AGAINST” such proposal.

 

Q:	What will Exterran stockholders receive for their Exterran common stock if the transaction is completed?

 

A:

Under the Merger Agreement, at the effective time, each share of common stock of Exterran, par value $0.01 per share, issued and outstanding immediately prior to the effective time of the merger (other than certain excluded shares as described in the Merger Agreement) will be converted into the right to receive the “exchange ratio” of 1.021 validly issued, fully paid and non-assessable Enerflex common shares. Each holder of Exterran common stock will receive cash (without interest and less any applicable withholding taxes) in lieu of any fractional Enerflex common shares that such stockholder would otherwise receive as merger consideration in the transaction. Any cash amounts to be received by Exterran stockholders 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 to reflect changes in the price of Exterran common stock or Enerflex common shares prior to the effective time. Enerflex has applied to list the Enerflex

 

- 22 -

common shares received by Exterran stockholders under the merger on the NYSE under the symbol “EFXT”, and the TSX under the symbol “EFX.” Based on the number of shares of Exterran common stock issued and issuable pursuant to Exterran equity awards and Enerflex common shares outstanding on September 8, 2022, upon completion of the transaction, we expect that former Exterran stockholders will own approximately 27.5% of the outstanding Enerflex common shares, and holders of Enerflex common shares immediately prior to the transaction will own approximately 72.5% of the outstanding common shares of Enerflex. Exterran common stock is traded on the NYSE under the symbol “EXTN.” We encourage you to obtain current quotes for the Enerflex common shares and the Exterran common stock.

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 Exterran stockholders 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 Exterran stockholders vote on the transaction. The market price of Enerflex common shares that Exterran stockholders 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 proxy statement/prospectus or at the time of the Exterran special meeting. Based on the closing price of Enerflex common shares of C$7.90 on the TSX on January 21, 2022, the last full trading day prior to that on which the Merger Agreement was announced, the implied value of the merger consideration to Exterran stockholders was approximately C$8.066 per share of Exterran common stock. On September 8, 2022, the latest practicable trading day before the date of this proxy statement/prospectus, the closing price of Enerflex common shares on the TSX was C$6.56 per share, resulting in an implied value of the merger consideration to Exterran stockholders of C$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” on page 153.

 

Q:	How does the Exterran board recommend that I vote at the Exterran special meeting?

 

A:	The Exterran board unanimously recommends that you vote “FOR” the Exterran merger proposal, “FOR” the Exterran compensation proposal and “FOR” the Exterran adjournment proposal.

In considering the recommendations of the Exterran board, Exterran stockholders should be aware that Exterran directors and executive officers have interests in the transaction that may be different from, or in addition to, the interests of Exterran stockholders generally. These interests may include 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.

Each executive officer of Exterran has entered into a change of control agreement, which will entitle the executive officer to receive additional compensation if the executive officer is terminated for a qualifying termination. For a more complete description of such change of control agreements, see the section entitled “The Exterran Merger Proposal—Interests of Exterran’s Directors and Executive Officers in the Transaction—Change of Control Agreements” on page 129.

Additionally, under the Exterran Corporation 2020 Stock Incentive Plan, Exterran awards assumed by Enerflex will continue to vest under their existing terms and will not be accelerated unless an executive officer’s employment is terminated by Enerflex without “cause” or by the employee for “good reason” within 18 months of the merger. The total estimated amounts that would be payable to Exterran’s named executive officers is $19,292,376, and is described in further detail in the section entitled “The Exterran Merger Proposal—Interests of Exterran’s Directors and Executive Officers in the Transaction—Golden Parachute Compensation” on page 132.

 

- 23 -

For a more complete description of these interests, see the information provided in the section entitled “The Exterran Merger Proposal—Interests of Exterran’s Directors and Executive Officers in the Transaction” on page 129.

 

Q:	Have any of Exterran’s stockholders already agreed to approve the proposal to adopt the Merger Agreement?

 

A:

Yes, pursuant to voting agreements entered into with certain stockholders, all of the funds managed by Chai Trust Company, LLC that own Exterran common stock (which we refer to as “Exterran supporting stockholders”) and all of the directors and officers of Exterran have agreed, subject to the terms and conditions of the voting agreements, to vote the shares beneficially owned by them, specifically, an aggregate of 8,157,415 shares of Exterran common stock (or 24.57% of the outstanding shares as of September 8, 2022) in the case of the Exterran supporting stockholders, and an aggregate of 1,326,726 shares of Exterran common stock (or 3.98% of the outstanding shares as of September 8, 2022 and together with the Exterran supporting stockholders, 28.55% of the outstanding shares as of September 8, 2022), in the case of the directors and officers of Exterran, in favor of the adoption of the Merger Agreement and the approval of the transaction. The Exterran supporting stockholders and directors and officers also agreed to certain restrictions on the transfer of the shares beneficially owned by that stockholder at such time (which we refer to as the “covered shares”), as well as restrictions on transfer of voting rights with respect to the covered shares. For additional information, see the section entitled “The Voting Agreements” beginning on page 183.

 

Q:	If my Exterran stock is represented by physical stock certificates, should I send my stock certificates now?

 

A:	No. After the transaction is completed, you will receive a transmittal form from the exchange agent with instructions for the surrender of your Exterran stock certificates. Please do not send your stock certificates with your proxy card.

 

Q:	Who may vote at the Exterran special meeting?

 

A:

All holders of record of shares of Exterran common stock who held shares at the close of business on September 7, 2022 are entitled to receive notice of, and to vote at, the Exterran special meeting. Each such holder of Exterran common stock is entitled to cast one vote on each matter properly brought before the Exterran special meeting for each share of Exterran common stock that such holder owned of record as of the record date. Attendance at the Exterran special meeting is not required to vote. See below and the section entitled “The Exterran Special Meeting—Voting by Proxy or in Person” on page 91 for instructions on how to vote your shares without attending the Exterran special meeting.

 

Q:	What is a proxy?

 

A:	A proxy is a stockholder’s legal designation of another person to vote shares owned by such stockholder on their behalf. The document used to designate a proxy to vote your shares of Exterran common stock is referred to as a “proxy card.”

 

Q:	How many votes does each share of Exterran common stock have?

 

A:	Each Exterran stockholder is entitled to one vote for each share of Exterran common stock held of record as of the record date. As of the record date, there were 33,313,473 outstanding shares of Exterran common stock.

 

Q:	How many votes must be present to hold the Exterran special meeting?

 

A:	A quorum is the minimum number of shares required to be represented, either by the appearance of the stockholder in person (including virtually) or through representation by proxy, to hold a valid meeting.

 

- 24 -

Holders of a majority of the aggregate voting power of the Exterran common stock issued and outstanding and entitled to vote at the meeting must be present via the special meeting website or represented by proxy at the Exterran special meeting in order to constitute a quorum.

If a quorum is not present, the Exterran special meeting may be adjourned or postponed until the holders of the number of shares of Exterran common stock required to constitute a quorum attend.

 

Q:	Where will the Enerflex common shares that I receive in the transaction be publicly traded?

 

A:

Enerflex has applied to list the common shares of Enerflex received by Exterran stockholders in the merger on the NYSE under the symbol “EFXT.” The Enerflex common shares are currently listed on the TSX under the symbol “EFX”. Conditional listing approval of the Enerflex common shares on the NYSE or Nasdaq, as the case may be, and the conditional listing approval by the TSX of the Enerflex common shares to be issued to Exterran stockholders pursuant to the Merger Agreement is a condition to the closing of the Merger Agreement. The NYSE and the TSX have conditionally approved the listing of the Enerflex common shares to be issued to Exterran stockholders pursuant to the Merger Agreement, which Enerflex common shares will be registered in the U.S. pursuant to this proxy statement/prospectus. Listing of such Enerflex common shares is subject to Enerflex fulfilling all of the requirements of the NYSE and the TSX on or before the business day following the closing date. There can be no assurance that the Enerflex common shares will be accepted for listing on either the NYSE or the TSX.

 

Q:	What happens if the transaction is not completed?

 

A:

If the Exterran merger proposal is not approved by Exterran stockholders, or if the transaction is not completed for any other reason, Exterran stockholders will not receive the merger consideration or any other consideration in connection with the transaction, and their Exterran common stock will remain outstanding.

If the transaction is not completed, Enerflex and Exterran will each remain public companies independent of one another, the Exterran common stock will continue to be listed and traded on the NYSE under the symbol “EXTN.”

If the Merger Agreement is terminated under specified circumstances, Exterran may be required to pay Enerflex a termination payment of $10.0 million. If the Merger Agreement is terminated under specified circumstances, Enerflex may be required to pay Exterran a termination payment of either $20.0 million or $30.0 million, depending on the reason for termination. See the section entitled “The Merger Agreement—Termination or Abandonment of the Merger Agreement” on page 179 for a more detailed discussion of the termination payments.

 

Q:	What is a “broker non-vote”?

 

A:

Under the NYSE rules, banks, brokers and other nominees may use their discretion to vote “uninstructed” shares (i.e., shares of record held by banks, brokers or other nominees, but with respect to which the beneficial owner of such shares has not provided instructions on how to vote on a particular proposal) with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. All of the Exterran proposals are “non-routine” matters under NYSE rules.

A “broker non-vote” occurs on an item when (1) a bank, broker or other nominee has discretionary authority to vote on one or more proposals to be voted on at a meeting of stockholders, but is not permitted to vote on other proposals without instructions from the beneficial owner of the shares, and (2) the beneficial owner fails to provide the bank, broker or other nominee with such instructions. The impact of broker non-votes and other non-votes on the Exterran proposals is discussed in the section entitled “The Exterran Special Meeting – Quorum; Abstentions and Broker Non-Votes” beginning on page 89.

 

- 25 -

Q:	What stockholder vote is required for the approval of each Exterran proposal at the Exterran special meeting? What will happen if I fail to vote or abstain from voting on each Exterran proposal at the Exterran special meeting?

 

A:

Proposal 1: Exterran Merger Proposal. Assuming a quorum is present at the Exterran special meeting, 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. Accordingly, an Exterran stockholder’s abstention from voting or the failure of any Exterran stockholder to vote (including the failure of an Exterran stockholder who holds their shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to the Exterran merger proposal) will have the same effect as a vote “AGAINST” the Exterran merger proposal.

Proposal 2: Exterran Compensation Proposal. Assuming a quorum is present at the Exterran special meeting, approval of the advisory Exterran compensation proposal requires the affirmative vote of at least a majority of the votes cast affirmatively or negatively on the Exterran compensation proposal. Accordingly, assuming a quorum is present, the failure to return or submit your proxy or to attend the Exterran special meeting will have no effect on the Exterran compensation proposal. The failure of any shares present or represented by proxy at the Exterran special meeting to vote affirmatively or negatively on the Exterran compensation proposal will have no effect on such proposal.

Proposal 3: Exterran Adjournment Proposal. Assuming a quorum is present at the Exterran special meeting, approval of the Exterran adjournment proposal requires the affirmative vote of at least a majority of the votes cast affirmatively or negatively on the Exterran adjournment proposal. If a quorum is not present, the Exterran adjournment proposal requires the approval of the stockholders present at the Exterran special meeting, by the affirmative vote of the holders of a majority in voting power thereof; provided that the chairperson of the Exterran special meeting may also adjourn such meeting in accordance with Exterran’s bylaws. Accordingly, whether or not a quorum is present, the failure to return or submit your proxy or to attend the Exterran special meeting will have no effect on the Exterran adjournment proposal. Assuming a quorum is present, the failure of any shares present or represented by proxy at the Exterran special meeting to vote affirmatively or negatively on the Exterran adjournment proposal will have no effect on such proposal. However, assuming a quorum is not present, the failure of any shares present or represented by proxy at the Exterran special meeting to vote affirmatively on the Exterran adjournment proposal will be treated as a vote “AGAINST” such proposal.

 

Q:	Why am I being asked to consider and vote on a proposal to approve, by non-binding, advisory vote, the compensation that may be paid or become payable to Exterran’s named executive officers (i.e., the Exterran compensation proposal)?

 

A:	Under SEC rules, Exterran is required to seek a non-binding, advisory vote of its stockholders with respect to the compensation that may be paid or become payable to Exterran’s named executive officers that is based on or otherwise relates to the transactions contemplated by the Merger Agreement.

 

Q:	What happens if Exterran stockholders do not approve, by non-binding, advisory vote, the compensation that may be paid or become payable to Exterran’s named executive officers (i.e., the Exterran compensation proposal)?

 

A:

Because the vote to approve the Exterran compensation proposal is advisory in nature, the outcome of the vote will not be binding upon Exterran or the combined company, and the completion of the transaction is not conditioned or dependent upon the approval of the Exterran compensation proposal. Accordingly, the compensation that is subject to the vote, which is described in the section entitled “The Exterran Merger Proposal—Interests of Exterran’s Directors and Executive Officers in the Transaction” on page 129 of this proxy statement/prospectus, may be paid to Exterran’s named executive officers even if Exterran’s stockholders do not approve the Exterran compensation proposal.

 

- 26 -

Q:	How can I vote my shares at the Exterran special meeting?

 

A:

Shares held directly in your name as the stockholder of record of Exterran may be voted during the Exterran special meeting via the special meeting website. If you choose to vote your shares during the virtual meeting, you will need the control number included on your proxy card in order to access the special meeting website and to vote as described in the section entitled “The Exterran Special Meeting—Voting by Proxy or in Person” on page 91.

If you hold your shares through a bank, broker or other nominee in “street name” instead of as a registered holder, you must follow the voting instructions provided by your bank, broker or other nominee in order to vote your shares. Your voting instructions must be received by your bank, broker or other nominee prior to the deadline set forth in the information from your bank, broker or other nominee on how to submit voting instructions. If you do not provide voting instructions to your bank, broker or other nominee with respect to a proposal, your shares of Exterran common stock will not be voted on that proposal as your bank, broker or other nominee does not have discretionary authority to vote on any of the Exterran proposals; see the section entitled “The Exterran Special Meeting—Quorum; Abstentions and Broker Non-Votes,” on page 89.

If you wish to attend the special meeting to personally vote your shares held in “street name” via the special meeting website, you will need to obtain a proxy from the holder of record (i.e. your broker, bank or other nominee); a proxy is not the form of proxy card enclosed with this proxy statement. Please follow the instructions from your broker, bank or other nominee included with these proxy materials, or contact that

organization to request a proxy form.

Even if you plan to attend the Exterran special meeting, Exterran recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to or become unable to attend the Exterran special meeting.

Additional information on attending the Exterran special meeting can be found under the section entitled “The Exterran Special Meeting” on page 88.

 

Q:	How can I vote my shares without attending the Exterran special meeting?

 

A:

Stockholders of record of Exterran may direct their vote by proxy without attending the Exterran special meeting. If you are a stockholder of record, you can vote by proxy over the internet, or by telephone or by mail by following the instructions provided in the enclosed proxy card. Please note that if you hold shares beneficially in “street name,” you should follow the voting instructions provided by your bank, broker or other nominee. Additional information on voting procedures can be found under the section entitled “The Exterran Special Meeting” on page 88.

 

Q:	What is the difference between holding shares as a stockholder of record and as a beneficial owner of shares held in “street name?”

 

A:

If your shares of Exterran common stock are registered directly in your name with AST, the transfer agent for Exterran, you are considered the stockholder of record with respect to those shares. As the stockholder of record, you have the right to vote your shares directly at the Exterran special meeting. You may also grant a proxy for your vote directly to Exterran or to a third party to vote your shares at the Exterran special meeting.

If your shares of Exterran common stock are held by a bank, broker or other nominee, you are considered the beneficial owner of shares held in “street name.” Your bank, broker or other nominee will send you, as the beneficial owner, a package describing the procedures for voting your shares and you must instruct the bank, broker or other nominee on how to vote them by following the instructions that the bank, broker or other nominee provides to you with these proxy materials. Most banks, brokers and other nominees offer the ability for stockholders to submit voting instructions by mail by completing a voting instruction card, by telephone, and by the internet.

 

- 27 -

Q:	If my shares of Exterran common stock are held in “street name” by my bank, broker or other nominee, will my bank, broker or other nominee automatically vote those shares for me?

 

A:

No. Your bank, broker or other nominee will only be permitted to vote your shares of Exterran common stock if you instruct your bank, broker or other nominee how to vote. You should follow the procedures provided by your bank, broker or other nominee regarding the voting of your shares. Under NYSE rules, banks, brokers and other nominees who hold shares of Exterran common stock in “street name” for their customers have authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokers and other nominees are prohibited from exercising their voting discretion with respect to non-routine matters, which include all the Exterran proposals. As a result, absent specific instructions from the beneficial owner of such shares, banks, brokers and other nominees are not empowered to vote such shares.

Since there are no items on the agenda that your broker has discretionary authority to vote upon, your shares will not be counted as present at the Exterran special meeting for the purposes of determining a quorum if you fail to instruct your broker on how to vote on the Exterran proposals. If you fail to submit any instruction to your bank, broker or other nominee, it will have no effect on the Exterran compensation proposal, assuming that a quorum is otherwise present, and it will have no effect on the Exterran adjournment proposal. However, failure to instruct your bank, broker or other nominee on how to vote will have the same effect as a vote “AGAINST” the Exterran merger proposal.

 

Q:	What should I do if I receive more than one set of voting materials for the Exterran special meeting?

 

A:

If you hold shares of Exterran common stock in “street name” and also directly in your name as a stockholder of record or otherwise, or if you hold shares of Exterran common stock in more than one brokerage account, you may receive more than one set of voting materials relating to the Exterran special meeting.

Record Holders. For shares held directly, please complete, sign, date and return each proxy card (or cast your vote by telephone or via the internet as provided on each proxy card) or otherwise follow the voting instructions provided in this proxy statement/prospectus in order to ensure that all of your shares of Exterran common stock held directly by you are voted.

Shares in “street name.” For shares held in “street name” through a bank, broker or other nominee, you should follow the procedures provided by your bank, broker or other nominee to make sure that you vote all of your shares held in “street name.”

 

Q:	If a stockholder gives a proxy, how are the shares of Exterran common stock voted?

 

A:

Regardless of the method you choose to vote, the individuals named on the enclosed proxy card will vote your shares of Exterran common stock in the way that you indicate. For each item before the Exterran special meeting, you may specify whether your shares of Exterran common stock should be voted for or against, or should abstain from voting.

 

Q:	How will my shares of Exterran common stock be voted if I return a blank proxy?

 

A:

If you sign, date and return your proxy and do not indicate how you want your shares of Exterran common stock to be voted, then your shares of Exterran common stock will be voted in accordance with the recommendations of the Exterran board: “FOR” the Exterran merger proposal, “FOR” the Exterran compensation proposal and “FOR” the Exterran adjournment proposal.

 

- 28 -

Q:	Can I change my vote after I have submitted my proxy?

 

A:	Any Exterran stockholder giving a proxy has the right to revoke the proxy and change their vote before the proxy is voted at the Exterran special meeting by doing any of the following:

 

•

by voting again by internet or telephone as instructed on your proxy card before the commencement of the Exterran special meeting;

 

•

by delivering a signed written notice of revocation to Exterran’s Corporate Secretary, provided such statement is received no later than the commencement of the Exterran special meeting;

 

•

by submitting a properly signed and dated proxy card with a later date that is received by Exterran no later than the close of business on the date of commencement of the Exterran special meeting; or

 

•

by voting at the Exterran special meeting via the special meeting website.

Execution or revocation of a proxy will not in any way affect your right to attend the Exterran special meeting and vote thereat. Written notices of revocation and other communications with respect to the revocation of proxies should be addressed to:

Exterran Corporation

11000 Equity Drive

Houston, Texas 77041

(281) 836-7000

Attention: Corporate Secretary

For more information, see the section entitled “The Exterran Special Meeting—Revocability of Proxies and Changes to an Exterran Stockholder’s Vote” on page 92.

 

Q:	If I hold my shares in “street name,” can I change my voting instructions after I have submitted voting instructions to my bank, broker or other nominee?

 

A:	If your shares are held in the name of a bank, broker or other nominee and you previously provided voting instructions to your bank, broker or other nominee, you should follow the instructions provided by your bank, broker or other nominee to revoke or change your voting instructions.

 

Q:	Where can I find the voting results of the Exterran special meeting?

 

A:

The preliminary voting results for the Exterran special meeting are expected to be announced at the Exterran special meeting. In addition, within four business days following the special meeting, Exterran will file the final voting results of the Exterran special meeting (or, if the final voting results have not yet been certified, the preliminary results) with the SEC on a Current Report on Form 8-K.

 

Q:	Do Exterran stockholders have dissenters’ or appraisal rights?

 

A:

No. Because Exterran common stock will be listed on the NYSE as of the record date for the Exterran special 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.

 

- 29 -

Q:	Are there any risks that I should consider in deciding whether to vote for the approval of the Exterran merger proposal?

 

A:

Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” on page 54. You also should read and carefully consider the risk factors with respect to Exterran and Enerflex that are contained in the documents that are incorporated by reference into this proxy statement/prospectus.

 

Q:	What happens if I sell my shares of Exterran common stock after the record date but before the Exterran special meeting?

 

A:

The record date is earlier than the date of the Exterran special meeting. If you sell or otherwise transfer your shares of Exterran common stock after the record date but before the Exterran special meeting, you will, unless special arrangements are made, retain your right to vote at the Exterran special meeting.

 

Q:	Who is paying for the Exterran special meeting and this proxy solicitation?

 

A:

Exterran has engaged Innisfree M&A Incorporated (which we refer to as “Innisfree”) to assist in the solicitation of proxies for the Exterran special meeting. Exterran estimates that it will pay Innisfree a fee of approximately $20,000, plus reimbursement for certain out-of-pocket fees and expenses. Exterran has agreed to indemnify Innisfree against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

Exterran also may be required to reimburse banks, brokers and other custodians, nominees and fiduciaries or their respective agents for their expenses in forwarding proxy materials to beneficial owners of Exterran common stock. Exterran’s directors, officers and employees and Enerflex’s directors, officers and employees also may solicit proxies by telephone, by electronic means or in person. They will not be paid any additional amounts for soliciting proxies.

 

Q:	When is Enerflex’s acquisition of Exterran expected to be completed?

 

A:

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” on page 156, including approval of the Exterran merger proposal by Exterran stockholders, the transaction is expected to be completed in the second half of 2022. However, neither Exterran nor Enerflex can predict the actual date on which the transaction will be completed, or if the transaction will be completed at all, because completion of the transaction is subject to conditions and factors outside the control of both companies, including the receipt of certain required antitrust approvals. The Merger Agreement requires Enerflex’s acquisition of Exterran to be completed by the end date of October 24, 2022, with one automatic 30-day extension to obtain antitrust approvals and financing.

 

Q:	What equity stake will Exterran stockholders hold in Enerflex immediately following the transaction?

 

A:

Based on the number of Enerflex common shares and shares of Exterran common stock outstanding on September 8, 2022, at the effective time, former Exterran stockholders are expected to own approximately 27.5% of the outstanding Enerflex common shares, and persons who were Enerflex shareholders immediately prior to the transaction are expected to own approximately 72.5% of the outstanding Enerflex common shares. The relative ownership interests of Enerflex shareholders and former Exterran stockholders 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 the transaction.

 

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Q:	If I am a holder of Exterran common stock, how will I receive the merger consideration to which I am entitled?

 

A:

If you hold your shares of Exterran common stock in book-entry form, whether through The Depository Trust or otherwise, you will not be required to take any specific actions to exchange your shares for Enerflex common shares. Your shares of Exterran common stock will, at the effective time, be automatically exchanged for the Enerflex common shares and any cash in lieu of fractional Enerflex common shares to which you are entitled. If you instead hold your shares of Exterran common stock in certificated form, then, after receiving the proper and completed documentation from you following the completion of the transaction, TSX Trust Company or a bank or trust company or similar institution selected by Enerflex with Exterran’s prior approval will deliver to you the Enerflex common shares and any cash in lieu of any fractional Enerflex common shares to which you are entitled as merger consideration. More information may be found in the sections entitled “The Merger Agreement—Merger Consideration” and “The Merger Agreement—No Fractional Shares” on pages 153 and 153, respectively.

 

Q:	Will the Enerflex common shares to be issued to Exterran stockholders at the effective time be traded on an exchange?

 

A:

Yes. It is a condition to the completion of the transaction that the Enerflex common shares to be issued in connection with the merger be approved for listing on the NYSE or Nasdaq, subject to official notice of issuance, and the TSX, subject to customary listing conditions. Enerflex has applied to list the Enerflex common shares received by Exterran stockholders in the merger, on the NYSE under the symbol “EFXT” and the TSX under the symbol “EFX.”

Enerflex common shares to be issued to Exterran stockholders in connection with the transaction will be freely transferable, except for Enerflex common shares issued to any stockholder deemed to be an “affiliate” of Enerflex for purposes of United States (which we refer to as the “U.S.”) federal securities law. Enerflex common shares to be issued to Exterran stockholders in connection with the transaction will not be legended and may be resold in Canada through registered dealers provided that (i) the trade is not a “control distribution” as defined in National Instrument 45-102—Resale of Securities of the Canadian Securities Administrators, (ii) no unusual effort is made to prepare the market or to create a demand for the Enerflex common shares, (iii) no extraordinary commission or consideration is paid to a person in respect of such sale, and (iv) if the selling security holder is an insider or officer of Enerflex, as the case may be, the selling security holder has no reasonable grounds to believe that Enerflex is in default of applicable Canadian securities laws. For more information, see the section entitled “The Exterran Merger Proposal—Restrictions on Resales of Enerflex Common Shares Received in the Transaction” on page 135.

 

Q:	What are the material U.S. federal income tax consequences of the transaction?

 

A:

Enerflex and Exterran intend that the transaction will qualify as a “reorganization” within the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended (which we refer to as the “Code”) and that Section 367(a)(1) of the Code will not apply to cause the transaction to result in gain recognition by U.S. Exterran stockholders that exchange their shares of Exterran common stock for the merger consideration (other than any such holder of Exterran common stock who would be treated as a “five-percent transferee shareholder” (within the meaning of Section 1.367(a)-3(c)(5)(ii) of the U.S. Treasury regulations promulgated under the Code, which we refer to as the “Treasury Regulations”) of Enerflex following the transaction who does not enter into a five-year gain recognition agreement in the form provided in Treasury Regulations Section 1.367(a)-8 or does not comply with the requirements of that agreement and Treasury Regulations Section 1.367(a)-8 for avoiding the recognition of gain, which we refer to as an “excepted shareholder”). However, neither Enerflex nor Exterran intend to seek or obtain a ruling from the U.S. Internal Revenue Service (which we refer to as the “IRS”) regarding the U.S. federal income tax treatment of the transaction. In addition, neither the obligation of Enerflex nor of Exterran to complete

 

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the transaction is conditioned upon the receipt of an opinion from counsel to the effect that the transaction will qualify as a “reorganization” within the meaning of Section 368(a) of the Code and that the transaction will not result in gain recognition under Section 367(a)(1) of the Code by Exterran stockholders (other than any excepted stockholder).

If the transaction qualifies as a reorganization and Section 367(a) does not apply to require gain recognition, a U.S. holder (other than an excepted shareholder) that exchanges shares of Exterran common stock for the merger consideration in the transaction will generally not recognize gain or loss other than with respect to any cash received in lieu of fractional Enerflex common shares. If the transaction were to fail to qualify as a reorganization for U.S. federal income tax purposes, U.S. Exterran stockholders would recognize gain or loss on their exchange of Exterran common stock for the merger consideration. If the transaction qualified as a reorganization but were to fail to satisfy the requirements for an exception to Section 367(a)(1) of the Code, U.S. Exterran stockholders would be required to recognize the full amount of any gain, but not any loss, on their exchange of Exterran common stock for the merger consideration. For the definition of “U.S. holder” and a more detailed discussion of the material U.S. federal income tax consequences of the transaction to U.S. holders, see the section entitled “The Exterran Merger Proposal—Material U.S. Federal Income Tax Consequences” on page 137.

The U.S. federal income tax consequences described above may not apply to all Exterran stockholders. The tax consequences to Exterran stockholders will depend on their individual situations. Accordingly, all Exterran stockholders are urged to consult their own tax advisors for a full understanding of the particular tax consequences of the transaction to them.

 

Q:	What are the material Canadian federal income tax consequences of the transaction?

 

A:

A Canadian resident holder (as defined in the section entitled “The Exterran Merger Proposal—Certain Canadian Federal Income Tax Consequences,” on page 141) who disposes of their Exterran common stock for Enerflex common shares (and any cash received in lieu of a fractional Enerflex common share) in connection with the transaction will generally realize a capital gain (or capital loss) for Canadian federal income tax purposes equal to the amount by which the sum of the aggregate of the fair market value of the Enerflex common shares and any cash received in lieu of a fractional Enerflex common share exceeds (or is less than) the adjusted cost base of the Canadian resident holder’s Exterran common stock determined immediately before the disposition and any reasonable costs of disposition.

A non-Canadian resident holder (as defined in the section entitled “The Exterran Merger Proposal—Certain Canadian Federal Income Tax Consequences,” on page 141) will not be subject to tax under the Income Tax Act (Canada) (which we refer to as the “Canadian tax act”) on any capital gain realized on a disposition of Exterran common stock in connection with the transaction, or on a subsequent disposition of an Enerflex common share acquired as result of the transaction, as applicable, unless the relevant share is “taxable Canadian property,” and is not “treaty-protected property” (as those terms are defined in the Canadian tax act) of the non-Canadian resident holder, at the time of the disposition.

For more information, see the section entitled “The Exterran Merger Proposal—Certain Canadian Federal Income Tax Consequences,” on page 141.

 

Q:	Is the exchange ratio subject to adjustment based on changes in the prices of Exterran common stock or Enerflex common shares? Can it be adjusted for any other reason?

 

A:

For the merger consideration, for each share of Exterran common stock, you will receive a fixed number of Enerflex common shares equal to the exchange ratio of 1.021, not a number of shares that will be determined based on a fixed market value. The market value of Enerflex common shares and the market value of Exterran common stock at the effective time may vary significantly from their respective values on

 

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the date that the Merger Agreement was executed or at other dates, such as the date of this proxy statement/prospectus or the date of the Exterran special meeting. Stock price changes may result from a variety of factors, including changes in Enerflex’s or Exterran’s respective businesses, operations or prospects, regulatory considerations, and general business, market, industry or economic conditions. The exchange ratio will not be adjusted to reflect any changes in the market value of Enerflex common shares or the market value of Exterran common stock. Therefore, the aggregate market value of the Enerflex common shares that you are entitled to receive at the effective time could vary significantly from the value of such shares on the date of this proxy statement/prospectus or the date of the Exterran special meeting. See the risk factor entitled “Because the exchange ratio is fixed and the market price of shares of Enerflex common shares has fluctuated and will continue to fluctuate, Exterran stockholders cannot be sure of the value of the merger consideration they will receive in the transaction prior to the closing of the transaction,” on page 54.

However, the merger consideration will be equitably adjusted to provide you and Enerflex with the same economic effect as contemplated by the Merger Agreement in the event of any further reclassification, stock split (including a reverse stock split), stock dividend or distribution, recapitalization, merger or other similar transaction involving Exterran common stock or Enerflex common shares prior to the effective time.

 

Q:	What should I do now?

 

A:

You should read this proxy statement/prospectus carefully and in its entirety, including the annexes, and return your completed, signed and dated proxy card(s) by mail in the enclosed postage-paid envelope or submit your voting instructions by telephone or over the internet as soon as possible so that your shares will be voted in accordance with your instructions.

 

Q:	How can I find more information about Exterran or Enerflex?

 

A:	You can find more information about Exterran or Enerflex from various sources described in the section entitled “Where You Can Find Additional Information,” on page 370 of this proxy statement/prospectus.

 

Q:	Whom do I call if I have questions about the Exterran special meeting or the transaction?

 

A:	If you have questions about the Exterran special meeting or the transaction, or desire additional copies of this proxy statement/prospectus or additional proxies, you may contact:

INNISFREE M&A INCORPORATED

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders May Call:

Toll-Free at (888) 750-5834 (from the U.S. and Canada)

Or +1 (412) 232-3651 (from other locations)

Banks & Brokers May Call: (212) 750-5833

 

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RISK FACTORS

You should consider carefully the following risk factors, as well as the other information set forth in and incorporated by reference into this proxy statement/prospectus, before making a decision on the Exterran merger proposal, the Exterran compensation proposal and the Exterran adjournment proposal. As Enerflex shareholders following the effective time, Exterran stockholders will be subject to all risks inherent in the business of Enerflex in addition to the risks relating to Exterran. The market value of Enerflex common shares will reflect the performance of the business relative to, among other things, that of the competitors of Enerflex and Exterran and general economic, market and industry conditions. The value of your investment may increase or may decline and could result in a loss.

In addition, Exterran’s and Enerflex’s respective businesses are subject to numerous risks and uncertainties, including the risks and uncertainties described, in the case of Exterran, in its Annual Report on Form 10-K for the year ended December 31, 2021, which is incorporated by reference into this proxy statement/prospectus.

For more information, please see the section entitled “Where You Can Find Additional Information” on page 370.

Risks Relating to the Transaction

Because the exchange ratio is fixed and the market price of shares of Enerflex common shares has fluctuated and will continue to fluctuate, Exterran stockholders cannot be sure of the value of the merger consideration they will receive in the transaction prior to the closing of the transaction.

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 proxy statement/prospectus until the closing date, which could occur a considerable amount of time after the date hereof. 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 proposed acquisition will be completed and/or the value that may be generated by the proposed acquisition and changes with respect to expectations regarding the timing of the proposed acquisition and regulatory considerations. Many of these factors are beyond Exterran’s and Enerflex’s control.

Upon completion of the merger, Exterran stockholders will become Enerflex shareholders, and the market price of Enerflex common shares may be affected by factors different from those that historically have affected Exterran.

Upon completion of the merger, Exterran stockholders will become Enerflex shareholders. Enerflex’s businesses differ from those of Exterran, and accordingly, the results of operations of Enerflex will be affected by some factors that are different from those currently affecting the results of operations of Exterran. For a discussion of the businesses of Exterran and Enerflex and of some important factors to consider in connection with those businesses, see the documents incorporated by reference in this proxy statement/prospectus and referred to in the section entitled “Where You Can Find Additional Information.”

The Enerflex common shares to be received by Exterran stockholders at the effective time will have different rights from shares of Exterran common stock.

At the effective time, Exterran stockholders will no longer be stockholders of Exterran but will instead have the right to become shareholders of Enerflex. The rights of former Exterran stockholders as stockholders will then be

 

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governed by Canadian law and by the terms of Enerflex’s restated articles of incorporation and by-laws, which are in some respects materially different than the terms of Exterran’s certificate of incorporation and bylaws, which currently govern the rights of Exterran stockholders. See the section of this proxy statement/prospectus entitled “Comparison of Rights of Enerflex Shareholders and Exterran Stockholders,” on page 335 for a discussion of the different rights associated with Enerflex common shares and Exterran common stock.

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 it 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 may prevent, delay or otherwise materially adversely affect the completion of the transaction. These conditions include, among other things: (1) receipt of the Exterran stockholder approval; (2) receipt of the Enerflex shareholder approval; (3) effectiveness of the Form F-4 (of which this proxy statement/prospectus forms a part) in accordance with the provisions of the U.S. 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; (4) the absence of any injunction or similar order prohibiting or making illegal the consummation of the transaction; (5) approval of applicable antitrust authorities; (6) the Enerflex common shares issuable in the merger having been approved for listing on the NYSE or Nasdaq, subject to official notice of issuance, and the TSX, subject to customary listing requirements; (7) the accuracy of each party’s representations and warranties, subject to certain materiality standards set forth in the Merger Agreement; (8) compliance by each party in all material respects with such party’s obligations under the Merger Agreement; and (9) 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 authorities 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 transactions contemplated by the Merger Agreement. These governmental authorities may initiate proceedings or otherwise seek to prevent the transaction. As a condition to authorization of the transactions contemplated by the Merger Agreement, these governmental authorities also may impose requirements, limitations or costs, require divestitures or place restrictions on the conduct of Enerflex’s business after the combination of Enerflex and Exterran following receipt of final antitrust approval.

We cannot provide any assurance that all required consents and approvals will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable), and, if all required consents and approvals are obtained and all closing conditions are satisfied (or waived, if applicable), we cannot provide any assurance as to the terms, conditions and timing of such consents and approvals or the timing of the completion of the transaction. Many of the conditions to completion of the transaction 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.

In order to complete the transaction, Enerflex and Exterran must obtain certain governmental approvals, and if such 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 required consents, orders and approvals will be obtained or that the required conditions to the completion of the transaction will be satisfied. Even if all such consents, orders and approvals are obtained and such conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents, orders and approvals. For example, these consents, orders and approvals may impose conditions

 

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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 consents, orders and 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 approvals. For more information, see the sections entitled “The Exterran Merger Proposal—Regulatory Approvals Required for the Transaction” and “The Merger Agreement—Conditions that Must be Satisfied or Waived for the Transaction to Occur,” on pages 134 and 156, respectively.

The Exterran special meeting may take place before all of the required regulatory approvals have been obtained and before all conditions to such approvals, if any, are known. Notwithstanding the foregoing, if the Exterran merger proposal is approved by Exterran stockholders, Exterran may not be required to seek further approval of Exterran stockholders.

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 of the merger, 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 combining the businesses of Exterran and Enerflex following the merger, including operational and other synergies that we believe 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 achievement of operating synergies, may not be realized. 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 and unforeseen expenses associated with the transaction that were not discovered in the course of performing due diligence. 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 the transaction, including obtaining required 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 of the transaction. Any of these matters could adversely affect the businesses of, or harm the

 

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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 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 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 transactions contemplated by the Merger Agreement, including costs relating to obtaining required 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, 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, Exterran will be required to pay to Enerflex a $10.0 million termination payment. In addition to its own fees and expenses, if the Merger Agreement is terminated under specified circumstances, Enerflex may be required to pay either $20.0 million or $30.0 million to Exterran, depending on the reason for the termination. For more information, see the section entitled “The Merger Agreement—Termination or Abandonment of the Merger Agreement,” on page 179.

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 you 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 condensed 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 condensed consolidated financial information included in this proxy statement/prospectus has been prepared using the consolidated historical financial statements of Enerflex and Exterran, 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 condensed consolidated financial information included in this proxy statement/prospectus 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 proxy statement/prospectus and unaudited pro forma condensed consolidated financial

 

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information included in this proxy statement/prospectus does not necessarily represent the combined company’s results of operations and financial condition had Exterran and Enerflex operated as a combined entity 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 condensed consolidated financial information contained in this proxy statement/prospectus, 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 condensed 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 Condensed Consolidated Financial Information,” on page 186, including the notes thereto.

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.

After the combination of Enerflex and Exterran following the merger, the combined company will have increased borrowings compared to pre-merger. Enerflex’s consolidated borrowings were approximately C$331.4 million (U.S.$260 million converted at the Bank of Canada exchange rate on December 31, 2021) as at December 31, 2021. The combined company’s pro forma borrowings as at December 31, 2021, if the acquisition of Exterran had been completed on that same date, would have been approximately U.S.$891 million, of which U.S.$891 million would have been at variable rates of interest when assuming borrowings for the transaction are made under the bridge facility.

Enerflex expects to incur approximately U.S.$903 million of debt in connection with the transaction, as a result of obtaining financing to complete the transaction and refinancing of debt assumed in the transaction as required. 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 acquisition of Exterran and obtains control of Exterran but does not achieve the expected benefits and cost savings from the acquisition, or if the financial performance of the combined company does not meet current expectations, then 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 acquisition of Exterran 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

 

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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 favorable 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 favorable 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 shareholder approval or 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 Enerflex’s shareholders or an amendment of this proxy statement/prospectus 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 Exterran’s financial advisor rendered to the Exterran board does not reflect changes in circumstances between the signing of the Merger Agreement and the closing of the transaction.

The Exterran board has received an opinion from Wells Fargo Securities, Exterran’s financial advisor, dated January 23, 2022, to the effect that, as of the date of the opinion and based on and subject to assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by the financial advisor as described in the written opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to the Exterran stockholders, but has not obtained an updated opinion as of the date of this proxy statement/prospectus. 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 Exterran’s financial advisor 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 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 Exterran board does not anticipate asking its financial advisor to update its opinion. The Exterran board’s recommendation that Exterran stockholders vote “FOR” approval of the Exterran merger proposal, “FOR” the non-binding compensation advisory proposal and “FOR” the Exterran adjournment proposal, however, is made as of the date of this proxy statement/prospectus.

For a description of the opinion that the Exterran board received from its financial advisor, see the section entitled “Opinion of the Financial Advisor to Exterran—Opinion of Wells Fargo Securities, LLC” on page 116. A copy of the opinion of Wells Fargo Securities is attached as Annex B to this proxy statement/prospectus and is incorporated by reference herein in its entirety.

 

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While the transaction is pending, Exterran is subject to business uncertainties and contractual restrictions that could materially adversely affect Exterran’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 Exterran 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 date. In addition, the Merger Agreement includes a variety of specified restrictions on the conduct of Exterran’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, Exterran may not, outside of the ordinary course of business, incur additional indebtedness, issue additional shares of Exterran’s common stock outside of its equity incentive plans, repurchase common stock, pay dividends, acquire assets, securities or property, dispose of businesses or assets, enter into certain material contracts or make certain additional capital expenditures. Exterran may find that these and other contractual restrictions in the Merger Agreement delay or prevent Exterran from making certain changes, or limit its ability to make certain changes, during such period, even if Exterran’s management believes that making certain changes may be advisable. The pendency of the transaction may also divert management’s attention and Exterran’s resources from ongoing business and operations.

Exterran’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 Exterran has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationship with Exterran as a result of the proposed acquisition. Similarly, current and prospective employees may experience uncertainty about their future roles with Exterran following completion of the transaction, which may materially and adversely affect Exterran’s ability to attract and retain key employees. If any of these effects were to occur, it could materially and adversely impact Exterran’s operating results, financial position, cash flows and/or stock price.

To consummate the transaction and fund the operations of the combined company, Enerflex expects to refinance its existing credit facility and replace existing credit obligations with a combination of a new committed credit facility, new bridge loan and/or the issuance of new credit securities. The new committed credit facility and bridge loans contain certain conditions to close and the issuance of new credit 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 to the combined company will be derived from a combination of some or all of: (i) its cash on hand; (ii) the 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 favorable and that the newly issued debt securities will be available on favorable 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 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

 

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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 its business strategy and objectives regarding the combined company’s business may materially adversely affect the future results of the combined company and 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 the combined company’s business strategy. Furthermore, Enerflex’s business strategy, operations and plans for growth of the combined company 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 its business strategy on a timely basis, 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 the market value of Enerflex common shares.

Failure to complete the transactions contemplated by the Merger Agreement could negatively impact the price of Exterran common stock, and future business and financial results.

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

 

•

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

 

•

Exterran will be required to pay Enerflex a termination payment of $10.0 million, 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 Exterran board has changed its recommendation in favor of the transaction or in certain circumstances where, after the date of the Merger Agreement, Exterran enters into an agreement providing for an alternative proposal (for these purposes, substituting in the definition of alternative proposal “50%” for “20%” and for “80%” in each place each such phrase appears, and we refer to such proposal, as a “qualifying transaction”) in respect of Exterran that is publicly proposed or publicly disclosed prior to, and not publicly withdrawn at least two business days prior to, the Exterran special meeting following termination of the Merger Agreement;

 

•

the Merger Agreement places certain restrictions on the conduct of Exterran’s business, and such restrictions, the waiver of which is subject to the consent of Enerflex, may prevent Exterran 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 control date, that Exterran would have made, taken or pursued if these restrictions were not in place; and

 

•

matters relating to the transaction (including integration planning) will require substantial commitments of time and resources by Exterran’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 Exterran as an independent company.

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

 

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

Directors and executive officers of Exterran have interests in the transaction that may differ from the interests of Exterran stockholders generally, including, if the transaction is completed, the receipt of financial and other benefits.

In considering the recommendations of the Exterran board, Exterran stockholders should be aware that Exterran’s directors and executive officers have interests in the transaction that may be different from, or in addition to, the interests of Exterran stockholders generally. These interests 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.

Each executive officer of Exterran has entered into a change of control agreement, which will entitle such an executive officer with additional compensation if such executive officer is terminated for a qualifying termination. For a more complete description of such change of control agreements, see the section entitled “The Exterran Merger Proposal—Interests of Exterran’s Directors and Executive Officers in the Transaction—Change of Control Agreements” on page 129.

Additionally, under the Exterran Corporation 2020 Stock Incentive Plan, Exterran awards assumed by Enerflex will continue to vest under their existing terms and will not be accelerated unless an executive officer’s employment is terminated by Enerflex without “cause” or by the employee for “good reason” within 18 months of the merger. The total estimated amounts that would be payable to Exterran’s named executive officers is $19,292,376, and is described in further detail in the section entitled “The Exterran Merger Proposal—Interests of Exterran’s Directors and Executive Officers in the Transaction—Golden Parachute Compensation” on page 132.

These interests are described in more detail in the section entitled “The Exterran Merger Proposal—Interests of Exterran’s Directors and Executive Officers in the Transaction,” on page 129.

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 October 24, 2022 (i.e., the end date); provided, that to the extent the condition to obtain the antitrust authorizations required to be obtained with respect to the transactions contemplated by the Merger Agreement has not been satisfied or waived 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 the closing), the end date will be automatically extended 30 days. 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,” on page 179.

There may be less publicly available information concerning Enerflex than there is for issuers that are not foreign private issuers because, as a foreign private issuer, Enerflex is exempt from a number of rules under the U.S. Exchange Act and is permitted to file less information with the SEC than issuers that are not foreign private issuers and Enerflex, as a foreign private issuer, is permitted to follow home country practice in lieu of the listing requirements of the NYSE, subject to certain exceptions.

For so long as Enerflex remains a foreign private issuer under the U.S. Exchange Act, Enerflex is exempt from certain rules under the U.S. Exchange Act. Enerflex is not currently required to file annual reports on

 

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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 U.S. 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 U.S. 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 U.S. Exchange Act. Accordingly, there may be less publicly available information concerning Enerflex than there is for companies whose securities are registered under the U.S. Exchange Act but are not foreign private issuers, and such information may not be provided as promptly as it is provided by such companies. In addition, certain information may be provided by Enerflex in accordance with Canadian law, which may differ in substance or timing from such disclosure requirements under the U.S. Exchange Act. For example, disclosure with respect to Enerflex annual meetings of shareholders will be governed by Canadian law. Further, as a foreign private issuer, under the NYSE rules Enerflex will be subject to less stringent corporate governance requirements, although Enerflex’s current corporate governance practices are consistent with all applicable Canadian regulatory guidelines and standards. Subject to certain exceptions, the rules of the NYSE permit a foreign private issuer to follow its home country practice in lieu of certain listing requirements of the NYSE, including, for example, certain internal controls as well as board, committee and director independence requirements. Enerflex is required to disclose any significant ways in which its corporate governance practices differ from those followed by U.S. domestic companies under the NYSE listing standards in its annual report filed with the SEC or on its website. Accordingly, Enerflex shareholders may not have the same protections afforded to shareholders of companies that are required to comply with all of the NYSE corporate governance requirements.

Enerflex is organized under the laws of Canada and a substantial portion of its assets are, and many of its directors and officers reside, outside of the U.S. As a result, it may not be possible for shareholders to enforce civil liability provisions of the securities laws of the U.S. against Enerflex, its officers, or members of the Enerflex board.

Enerflex is organized under the laws of Canada. A substantial portion of Enerflex’s assets is located outside the U.S., and many of Enerflex’s directors and officers and some of the experts named in this proxy statement/prospectus are residents of jurisdictions outside of the U.S. and the assets of such persons may be located 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 enforce judgments obtained in U.S. courts against Enerflex or such persons either inside or outside of the U.S., or to enforce in U.S. courts judgments obtained against Enerflex or such persons in courts in jurisdictions outside the U.S., in any action predicated upon the civil liability provisions of the federal securities laws of the U.S. There is no certainty that civil liabilities predicated solely upon the federal securities laws of the U.S. can be enforced in Canada, whether by original action or by seeking to enforce a judgment of U.S. courts. In addition, punitive damages awards in actions brought in the U.S. or elsewhere may be unenforceable in Canada.

Resales of Enerflex common shares following the transaction may cause the market value of Enerflex common shares to decline.

Based on the number of shares of Exterran common stock and Exterran equity awards outstanding as of September 8, 2022, Enerflex expects to issue or reserve for issuance up to approximately an aggregate of 34,018,055 Enerflex common shares at the effective time in connection with the transaction which includes an additional 5,000 Enerflex common shares that may be issuable to accomodate the effects of rounding or other administrative purposes. 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.

 

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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 transaction 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 shares of Exterran common stock and Exterran equity awards outstanding as of September 8, 2022, at the effective time, Enerflex expects to issue or reserve for issuance up to an aggregate of approximately 34,018,055 Enerflex common shares which includes an additional 5,000 Enerflex common shares that may be issuable to accommodate the effects of rounding or other administrative purposes at the effective time in connection with the transaction. As a result, it is expected that, immediately after the effective time, former Exterran stockholders will own approximately an aggregate of 27.5% of the outstanding Enerflex common shares. See the section of this proxy statement/prospectus entitled “The Merger Agreement—Treatment of Exterran Equity Awards,” on page 130 for a more detailed explanation. 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 common 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.

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

The combined company may be exposed to increased litigation from 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.

If the transaction is not treated as a “reorganization” for U.S. federal income tax purposes, or if the requirements for exception to Section 367(a) of the Code are not met, Exterran stockholders may be required to recognize gain for U.S. federal income tax purposes upon their exchange shares of Exterran common stock for the merger consideration.    

 

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Although Enerflex and Exterran intend that the transaction will qualify as a “reorganization” within the meaning of Section 368(a) of the Code and that Section 367(a)(1) of the Code will generally not apply to cause the transaction to result in gain recognition to Exterran stockholders (other than excepted shareholders), neither Enerflex nor Exterran has applied for, or expects to obtain, a ruling from the IRS with respect to the U.S. federal income tax consequences of the transaction. Accordingly, no assurance can be given that the IRS will not challenge the intended U.S. federal income tax consequences of the transaction. If the transaction were to fail to qualify as a reorganization for U.S. federal income tax purposes, U.S. holders (as defined below in the section entitled “The Exterran Merger Proposal—Material U.S. Federal Income Tax Consequences,” on page 137) of Exterran common stock would recognize gain or loss on their exchange of Exterran common stock for the merger consideration. If the transaction qualified as a reorganization but were to fail to satisfy the requirements for an exception to Section 367(a)(1) of the Code, U.S. Exterran stockholders would be required to recognize the full amount of any gain, but not any loss, on their exchange of Exterran common stock for the merger consideration.

For a more detailed discussion of the material U.S. federal income tax consequences of the transaction to U.S. holders, see the section entitled “The Exterran Merger Proposal—Material U.S. Federal Income Tax Consequences,” on page 137.

The 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. Accordingly, under generally applicable U.S. federal income tax rules, Enerflex, which is organized under the laws of Canada, 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 Exterran stockholders immediately after the merger, 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.

Enerflex and Exterran may have difficulty attracting, motivating and retaining executives and other key employees in light of the combination of Enerflex and Exterran.

Enerflex’s success after closing the transaction will depend in part on the ability of Enerflex to retain key executives and other employees with critical skills and knowledge which are crucial for the combined company to achieve key milestones and synergy realization. Uncertainty about the effect of the transaction on Enerflex and Exterran employees may have an adverse effect on each of Enerflex and Exterran separately and consequently the combined company. This uncertainty may impair Enerflex’s and/or Exterran’s ability to attract, retain and motivate key personnel. Employee retention may be particularly challenging during the pendency of the transaction, as employees of Enerflex and Exterran may experience uncertainty about their future roles in the combined company.

Additionally, Exterran’s officers and employees may hold shares of Exterran common stock, and, if the transaction closes, these officers and employees may be entitled to the merger consideration in respect of such shares of Exterran common stock. Under agreements between Exterran and certain of its key employees, such employees could potentially resign from employment on or after the effective time following specified

 

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circumstances constituting good reason or constructive termination (as set forth in the applicable agreement) that could result in severance payments to such employees and accelerated vesting of their equity awards. These payments and accelerated vesting benefits, individually or in the aggregate, could make retention of Exterran key employees more difficult.

Furthermore, if key employees of Enerflex or Exterran depart or are at risk of departing, including because of issues relating to the uncertainty and difficulty of integration, financial security or a desire not to become employees of the combined company, Enerflex may have to incur significant costs in retaining such individuals or in identifying, hiring and retaining replacements for departing employees and may lose significant expertise and talent, and the combined company’s ability to realize the anticipated benefits of the transaction may be materially and adversely affected. No assurance can be given that the combined company will be able to attract or retain key employees to the same extent that Enerflex and Exterran have been able to attract or retain employees in the past.

Both Enerflex and Exterran have revised their short term incentive programs for 2022 to promote retention of employees and incentivize the achievement of the closing and the associated synergy targets. Upon the occurrence of the closing or the achievement of certain synergy targets, Enerflex may award key employees of the combined company cash bonuses or equity awards to recognize individual contributions and encourage retention. These arrangements may require the payment of bonuses as determined by the Enerflex board. The amounts and recipients under such programs have yet to be determined.

The Merger Agreement contains provisions that make it more difficult for Enerflex and Exterran to pursue alternatives to the transaction and may discourage other companies from trying to acquire Exterran for greater consideration than what Enerflex has agreed to pay.

The Merger Agreement contains provisions that make it more difficult for Exterran to sell its business to a party other than Enerflex, or for Enerflex to sell its business. 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 favor 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 $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 $20.0 million. See “The Merger Agreement—No Solicitation” and “The Merger Agreement—Termination or Abandonment of the Merger Agreement,” on pages 166 and 179, respectively, of this proxy statement/prospectus.

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.

 

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The financial forecasts are based on various assumptions that may not be realized.

The financial estimates set forth in the forecasts included under the sections entitled “The Exterran Merger Proposal—Certain Unaudited Prospective Financial Information” on page 123 were based on assumptions of, and information available to, the management team of Exterran when prepared and these estimates and assumptions are subject to uncertainties, many of which are beyond the control of Exterran and may not be realized. Many factors mentioned in this proxy statement/prospectus, including the risks outlined in this “Risk Factors” section and the events or circumstances described under “Cautionary Statement Regarding Forward-Looking Statements,” will be important in determining the combined company’s future results. As a result of these contingencies, actual future results may vary materially from the estimates. In view of these uncertainties, the inclusion of financial estimates in this proxy statement/prospectus is not and should not be viewed as a representation that the forecasted results will necessarily reflect actual future results.

The financial estimates set forth in the forecasts included under the sections entitled “The Exterran Merger Proposal—Certain Unaudited Prospective Financial Information” on page 123 were based on assumptions that were not prepared with a view toward public disclosure, and such financial estimates were not prepared with a view toward compliance with published guidelines of any regulatory or professional body. Further, any forward-looking statement speaks only as of the date on which it is made, and Exterran and Enerflex do not undertake any obligation, other than as required by applicable law, to update the financial estimates in this proxy statement/prospectus to reflect events or circumstances after the date those financial estimates were prepared or to reflect the occurrence of anticipated or unanticipated events or circumstances. The Exterran and Enerflex prospective financial information included in this proxy statement/prospectus has been prepared by, and is the responsibility of, Exterran’s and Enerflex’s management, respectively. The prospective financial information was not prepared with a view toward compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation or presentation of prospective financial information. See “The Exterran Merger Proposal—Certain Unaudited Prospective Financial Information” on page 123 for more information. PricewaterhouseCoopers LLP has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying prospective financial information and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report incorporated by reference in this document relates to Exterran’s previously issued financial statements. It does not extend to the prospective financial information and should not be read to do so.

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 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.

Exterran stockholders will not be entitled to appraisal rights in the proposed merger.

Because Exterran common stock will be listed on the NYSE as of the record date for the Exterran special 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.

 

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Risks Related to Exterran’s and Enerflex’s Business

You should read and consider the risk factors specific to Exterran’s business that will also affect the combined company following 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 into this proxy statement/prospectus, and in other documents that are incorporated by reference into this proxy statement/prospectus. See the section entitled “Where You Can Find Additional Information,” on page 370 for the location of information incorporated by reference into this proxy statement/prospectus.

An investment in common shares of Enerflex involves a number of risks including, but not necessarily limited to, those set forth below.

Energy prices, industry conditions, and the cyclical nature of the energy industry could adversely impact Enerflex’s business and financial operations.

The oil and gas service industry is highly reliant on the levels of capital expenditures made by oil and gas producers and explorers. The capital expenditures of these companies, along with those midstream companies who service these oil and gas explorers and producers, impact the demand for Enerflex’s equipment and services. Capital expenditure decisions are based on various factors, including but not limited to: demand for hydrocarbons and prices of related products; exploration and development prospects in various jurisdictions; reserve production levels; oil and natural gas prices; and access to capital — none of which can be accurately predicted. Any downturn in commodity prices may lead to reduced levels of growth capital expenditures, which may negatively impact the demand for the products and services that Enerflex offers. Even the perception of lower oil or gas prices over the long term can result in a decision to cancel or postpone exploration and production capital expenditures, which may lead to a reduced demand for products and services offered by Enerflex.

The supply and demand for oil and gas is influenced by a number of factors, including the outlook for worldwide economies, as well as the activities of the Organization of Petroleum Exporting Countries (which we refer to as “OPEC”). Changing political, economic, or military circumstances throughout the energy producing regions of the world may impact the demand for oil and natural gas for extended periods of time, which in turn impacts the price of oil and natural gas. If economic conditions or international markets decline unexpectedly and oil and gas producing customers decide to cancel or postpone major capital expenditures, Enerflex’s business may be adversely impacted.

Enerflex has a number of competitors in all aspects of its business and could face increasing competition from new entrants, which could in turn, adversely impact Enerflex’s results of operations.

The business in which Enerflex operates is highly competitive and there are low barriers to entry, especially for natural gas compression services, contract compression, and the compression fabrication business. Several companies target the same customers as Enerflex in markets where margins can be low and contract negotiations can be challenging. Enerflex has a number of competitors in all aspects of its business, both domestically and abroad. Some of these competitors, particularly in the engineered systems division (as further described below), are also large, multi-national companies. Enerflex’s competitors may be able to adapt more quickly to technological changes within the industry or changes in economic and market conditions, more readily take advantage of acquisitions and other opportunities, and adopt more aggressive pricing policies. In addition, Enerflex could face significant competition from new entrants. Some of Enerflex’s existing competitors or new entrants may expand or fabricate new equipment that would create additional competition for the products, equipment, or services that Enerflex offers to customers. Further, Enerflex may not be able to take advantage of certain opportunities or make certain investments because of capital constraints, debt levels and other obligations. See the section entitled “Description of Business – Competitive Conditions” beginning on page 276.

Any of these competitive pressures could have a material adverse effect on Enerflex’s business, financial condition, and results of operations.

 

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Enerflex’s failure to execute on its projects in a timely and cost-effective manner could have a material adverse effect on Enerflex.

Enerflex engineers, designs, manufactures, constructs, commissions, operates, and services systems that process and/or compress products in a gaseous state. Enerflex’s expertise encompasses field production facilities, gas compression and processing plants, gas lift compression, refrigeration systems, and electric power equipment, primarily serving the natural gas production industry. Enerflex participates in some projects that have a relatively larger size and scope than the majority of its projects, which may translate into more technically challenging conditions or performance specifications for its products and services. These projects typically specify delivery dates, performance criteria, and penalties for the failure to perform. Enerflex’s ability to profitably execute on these solutions for customers is dependent on numerous factors which include, but are not limited to: changes in project scope; the availability and timeliness of external approvals and other required permits; skilled labour availability and productivity; availability and cost of material and services; the accuracy of design, engineering, and construction; the ability to access the job site; and the availability of contractors to support execution of Enerflex’s scope on these projects. Any failure to execute on these larger projects in a timely and cost-effective manner could have a material adverse effect on the business, financial condition, results of operations, and cash flows of Enerflex.

Enerflex pursues continuous improvement initiatives to achieve accurate, complete, and timely provision of deliverables. Nonetheless, project risks can translate into performance issues and project delays, as well as project costs exceeding cost estimates. While Enerflex will assess the recoverability of any cost overruns, there can be no assurance that these costs will be reimbursed, which may result in a material adverse effect on Enerflex’s business, financial condition, results of operations, and cash flows.

Enerflex is subject to rapidly evolving climate change policies and it is not possible to predict how new laws or regulations may impact Enerflex and Enerflex’s operations in the future.

Climate change policy is evolving at regional, national, and international levels, and political and economic events may significantly affect the scope and timing of climate change measures that are ultimately put in place. While Enerflex does not currently exceed the applicable thresholds for reduction initiatives in its jurisdictions of operations, there is a global trend in recent periods towards greater regulation of greenhouse gas (which we refer to as “GHG”) emissions. Although it is not possible at this time to predict how new laws or regulations would impact Enerflex’s business, any such future requirements imposing carbon pricing schemes, carbon taxes, or emissions reduction obligations on Enerflex’s equipment and operations could require it to incur costs to reduce emissions or to purchase emission credits or offsets and may cause delays or restrictions in its ability to offer its products and services. Failure to comply with such laws and regulations could result in significant liabilities or penalties being imposed on Enerflex. Any such laws or regulations could also increase the costs of compliance for Enerflex’s customers, and thereby negatively impact demand for Enerflex’s products and services.

The direct or indirect costs of compliance with such laws or regulations may have a material adverse effect on the business, financial condition, results of operations, and prospects of Enerflex. Given the evolving nature of the debate related to climate change and the control of GHGs and resulting regulatory requirements, it is not possible to predict with certainty the impact on Enerflex and its operations and financial condition.

The effects of climate change in the markets Enerflex operates in could result in increased costs, damage to assets and supply chain disruptions, among other impacts, which would adversely impact Enerflex’s business and financial operations.

There has been public discussion that climate change may be associated with extreme weather conditions such as more intense hurricanes, droughts, forest fires, thunderstorms, tornados, and snow or ice storms, as well as rising sea levels and other acute (event-driven) and chronic (long-term) climate events. Another possible consequence of climate change is increased volatility in seasonal temperatures. Some studies indicate that climate change could cause some areas to experience temperatures substantially colder or warmer than their historical averages.

 

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To the extent there are significant climate changes in the markets Enerflex serves or areas where Enerflex assets reside, Enerflex could incur increased costs, its assets could be damaged, it could experience supply chain disruption, operations could be materially impacted (such as shut-down requirements), there may be health implications for its employees, and its customers may experience operational disruptions causing reduced demand for Enerflex’s products. At this time, Enerflex is unable to determine the extent to which climate change may affect its operations.

Technological advances related to alternative energy sources may reduce demand for Enerflex’s products and services.

Demand for Enerflex’s products may also be affected by the development and demand for new technologies in response to global climate change. Many governments provide, or may in the future provide, tax incentives and other subsidies to support the use and development of alternative energy technologies. Technological advances and cost declines in alternative energy sources (such as hydrogen and renewables), electric grids, electric vehicles, and batteries may reduce demand for hydrocarbon, which could lead to a lower demand for Enerflex’s low-carbon products and services. If customer preferences shift, Enerflex may also be required to develop new technologies, requiring significant investments of capital and resources, which may or may not be recoverable in the marketplace and which could result in certain products becoming less profitable or uneconomic. At this time, Enerflex is unable to determine the extent to which such technological risks may detrimentally impact its business prospects, financial condition, and reputation.

Investor sentiment regarding the oil and gas industry may impact Enerflex’s access to capital while evolving environmental, social and governance disclosure standards are attracting increased scrutiny from stakeholders and could lead to more costly policies and practices being implemented to the detriment of Enerflex.

A number of factors, including the impact of oil and natural gas operations on the environment, the effects of the use of hydrocarbons on climate change, ecological damage relating to spills of petroleum products during production and transportation, and human rights, have affected certain investors’ sentiments towards investing in the oil and natural gas industry. As a result of these concerns, some institutional, retail, and governmental investors have announced that they are no longer willing to fund or invest in companies in the oil and natural gas industry, or are reducing the amount thereof over time. Any reduction in the investor base interested or willing to invest in the oil and natural gas industry may result in limiting Enerflex’s access to capital, increasing its cost of capital, and decreasing the price and liquidity of Enerflex’s securities.

In addition, practices and disclosures relating to environmental, social and governance (which we refer to as “ESG”) matters (including but not limited to climate change and emissions, diversity and inclusion, data security and privacy, ethical sourcing, and water, waste and ecological management) are attracting increasing scrutiny by stakeholders. Certain stakeholders are requesting that issuers develop and implement more robust ESG policies and practices. Developing and implementing such policies and practices can involve significant costs and require a significant time commitment from the Enerflex board, executive management team, and employees of Enerflex. Failing to implement the policies and practices, as requested or expected by the Enerflex stakeholders, may result in such investors reducing their investment in Enerflex, or not investing in Enerflex at all. Enerflex’s response to addressing ESG matters and any negative perception thereof can also impact Enerflex’s reputation, business prospects, ability to hire and retain qualified employees, and vulnerability to activist shareholders. Such risks could adversely affect Enerflex’s business, future operations, and profitability.

Enerflex is exposed to customer credit risks.

A substantial portion of Enerflex’s accounts receivable balances are with customers involved in the oil and natural gas industry. Many customers finance their exploration and development activities through cash flow from operations, the incurrence of debt, or the issuance of equity. During times when the oil or natural gas

 

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markets weaken, customers may experience decreased cash flow from operations, or a reduction in their ability to access capital. A reduction in borrowing bases under reserve-based credit facilities, the lack of availability of debt or equity financing or other factors that negatively impact customers’ financial condition may impair their ability to pay for products or services rendered. Enerflex may extend credit to certain customers for products and services that it provides during its normal course of business. Enerflex monitors its credit exposure to its customers, but there can be no certainty that a credit-related loss will not materialize or have a material adverse impact on the organization. The consolidation of energy producers and increased number of smaller start-up exploration and production companies may alter Enerflex’s exposure to credit risk. The financial failure of a customer may impair Enerflex’s ability to collect on all or a portion of the accounts receivable balance from that customer.

Enerflex has remained vigilant during 2021 in monitoring the aging of receivables and proactively collecting outstanding balances. To address the challenging economic conditions confronted by the oil and natural gas industry in recent years, Enerflex has implemented additional monitoring processes in assessing the creditworthiness of its customers. See the section entitled “Description of Business – Enerflex’s Customers” beginning on page 276.

Health crises, such as epidemics and pandemics (including COVID-19), may adversely impact Enerflex’s businesses and its ability to carry on its business.

Enerflex’s business, operations, and financial condition could be materially adversely affected by the outbreak of epidemics or pandemics, or other health crises, including the ongoing COVID-19 pandemic which prevailed throughout 2021. Such public health crises may adversely affect Enerflex, causing a slowdown or temporary suspension of Enerflex’s operations in geographic locations impacted by an outbreak, including due to:

 

•

reduced global economic activity and a corresponding decrease in demand for oil and natural gas, which could result in producers being forced to shut-in production and serve to lower demand for Enerflex’s products and services;

 

•

impaired supply chain as a result of mass quarantines, lockdowns, or border closures, thereby limiting the supply and increasing the cost of goods and services used in Enerflex’s operations; and

 

•

restricted workforce as a result of quarantines and health impacts, rendering employees unable to work or travel.

Any limitations imposed on the mobility of Enerflex’s employees may have an impact on Enerflex’s ability to complete projects, including BOOM or ITK projects requiring installation in the field. In the event that Enerflex is unable to meet contractual requirements due to such public health crises, and is unable to claim force majeure relief under the applicable contract or otherwise secure concessions from counterparties, Enerflex’s operational or financial results may be adversely impacted.

In addition to the overall slowdown in economic activity during the COVID-19 pandemic, the pandemic continued to impact Enerflex’s operations throughout 2021. COVID-related restrictions on travel and in-person gatherings remained in place in many parts of our operations, however business disruptions were not material, and Enerflex did not have to shut down any facilities or operations. Workforce COVID positivity rates were monitored to identify possible trends or operational vulnerabilities and Enerflex implemented continuity plans to mitigate the risk of business interruption. Enerflex was also able to maintain operations and otherwise mitigate COVID impacts by leveraging technologies which enable remote work arrangements, by proactively monitoring COVID cases and regulations in the communities in which we operate and by working with customers and supply chain partners to minimize disruptions. Enhanced cleaning protocols remained in place at Enerflex facilities and Enerflex undertook efforts to ensure its workforce had access to advice from healthcare professionals. Where possible, Enerflex provided support to enable employees and their families to access vaccines.

 

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Enerflex’s rental contracts vary in duration and Enerflex’s inability to extend or renew rental contracts with customers could adversely impact Enerflex’s business.

The duration of Enerflex’s rental contracts with customers vary based on operating conditions and customer needs. Initial contract terms typically are not long enough to enable Enerflex to recoup the cost of the equipment deployed in the energy infrastructure segment. Many of Enerflex’s North American rental contracts have short initial terms and after the initial term are cancelable on short notice. While these contracts are frequently extended beyond their initial terms, Enerflex cannot accurately predict which of these contracts will be extended or renewed beyond the initial term or that any customer will continue to contract with Enerflex. The inability to negotiate extensions or renew a substantial portion of Enerflex’s rental contracts, the renewal of such contracts at reduced rates, the inability to contract for additional services with customers, or the loss of all or a significant portion of the rental contracts with any significant customer could lead to a reduction in revenues and net income and could result in asset impairments. This could have a material adverse effect upon Enerflex’s business, financial condition, results of operations and cash flows.

Contracted revenue may be adversely impacted as the result of customer cash flow and access to capital constraints.

Many of Enerflex’s customers finance their exploration and development activities through cash flow from operations, incurrence of debt, or issuance of equity. If customers experience decreased cash flow from operations and limitations on their ability to incur debt or raise equity, for example due to weak oil or natural gas prices or reservoir underperformance, then they may seek to preserve capital by pursuing price concessions on revenue contracts, cancelling contracts, or determining not to renew contracts. Under these circumstances, Enerflex may be unable to renew recurring revenue contracts with customers on favorable commercial terms, if at all. Terms of new contracts or renegotiated contracts may also transfer additional risk of liquidated damages, consequential loss, liability caps, and indemnities to Enerflex. These factors may lead to a reduction in revenue and net income, which could have a material adverse effect on Enerflex’s business, financial condition, results from operations and cash flows.

Enerflex is subject to evolving HSE laws and regulations which are becoming increasingly stringent and may have adverse impacts on Enerflex’s financial results and operations.

Enerflex and many of its customers are subject to a variety of federal, provincial, state, local, and international laws and regulations relating to HSE. These laws and regulations are complex, subject to periodic revision, and are becoming increasingly stringent. The cost of compliance with these requirements may increase over time thereby increasing Enerflex’s operating costs or negatively impacting the demand for Enerflex’s products and services. Failure to comply with these laws and regulations may result in reputational damage, as well as the imposition of administrative, civil, and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements, and issuance of injunctions as to future compliance.

Compliance with environmental laws is a continuous priority across Enerflex operations and in the manufacturing of Enerflex’s products, as Enerflex uses and stores hazardous substances in its operations. In addition, many of Enerflex’s current and former properties are or have been used for industrial purposes. Certain environmental laws may impose joint and several and strict liability for environmental contamination, which may render Enerflex liable for remediation costs, natural resource damages, and other damages as a result of Enerflex conduct or the conduct of, or conditions caused by, prior owners or operators or other third parties. In addition, where contamination may be present, it is possible that neighboring landowners and other third parties may file claims for personal injury, property damage, and recovery of response costs. Remediation costs and other damages arising as a result of environmental laws and regulations could be substantial and could negatively impact financial condition, profitability and results of operations.

Enerflex may need to apply for or amend facility permits or licenses from time to time with respect to storm water, waste handling, or air emissions relating to manufacturing activities or equipment operations, which may

 

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subject Enerflex to new or revised permitting conditions. These permits and authorizations may contain numerous compliance requirements, including monitoring and reporting obligations and operational restrictions, such as emission limits, which may be onerous or costly to comply with. Given the large number of facilities in which Enerflex operates, and the numerous environmental permits and other authorizations that are applicable to its operations, Enerflex may occasionally identify or be notified of technical violations of certain compliance requirements and could be subject to penalties related thereto.

The adoption of new HSE laws or regulations, or more vigorous enforcement of existing laws or regulations, may also negatively impact Enerflex’s customers and demand for Enerflex’s products and services, which in turn would have a negative impact on Enerflex’s financial results and operations.

Enerflex is also subject to various federal, provincial, state, and local laws and regulations relating to safety and health conditions in its manufacturing facilities and other operations. Those laws and regulations may also subject Enerflex to material financial penalties or liabilities for any noncompliance, as well as potential business disruption if any of its facilities, or a portion of any facility, is required to be temporarily closed as a result of any violation of those laws and regulations. Any such financial liability or business disruption could have a material adverse effect on Enerflex’s projections, business, results of operations, and financial condition. See Risk Factors – Enerflex’s operations are susceptible to health and safety risks and failure to prevent or appropriately respond to such risks could result in injuries or fatalities.

Enerflex’s operations are susceptible to health and safety risks and failure to prevent or appropriately respond to such risks could result in injuries or fatalities which would adversely impact Enerflex’s reputation and operations.

Enerflex’s operations are susceptible to health and safety risks inherent in manufacturing, construction, and operations. These risks include but are not limited to: explosions caused by natural gas leaks; fires; severe weather and natural disasters; malfunctioning or improperly used tools and equipment; and vehicle collisions and other transportation incidents.

Failure to prevent or appropriately respond to a safety or health incident could result in injuries or fatalities among employees, contractors, visitors, or residents in communities near Enerflex operations. Such incidents may lead to liabilities arising out of personal injuries or death, operational interruptions, and shutdown or abandonment of affected facilities, including government-imposed orders to remedy unsafe conditions or circumstances, penalties associated with the contravention of applicable health and safety legislation, and potential civil liability. Preventing or responding to accidents could require Enerflex to expend significant time and effort, as well as financial resources to remediate safety issues, compensate injured parties, and repair damaged facilities. Any of the foregoing could have an adverse impact on Enerflex’s operations, financial results and reputation.

Enerflex is exposed to various risks associated with conducting its operations internationally.

Enerflex’s operations in countries outside of North America account for a significant amount of Enerflex’s revenue. Enerflex is exposed to risks inherent in conducting international operations, including but not limited to:

 

•

changes in political and economic conditions, including general political unrest and the imposition of sanctions on countries in which we operate or on customers which we service;

 

•

adverse fines or sanctions from regulatory bodies, legal judgments or settlements;

 

•

changes in foreign government policies, laws, regulations, and regulatory requirements, or the interpretation, application and/or enforcement thereof;

 

•

tax increases or changes in tax laws or in the interpretation, application and/or enforcement thereof;

 

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•

difficulties in staffing and managing foreign operations including logistical, safety, security, and communication challenges;

 

•

difficulties, delays, and expenses that may be experienced or incurred in connection with the movement and clearance of personnel and goods through the customs and immigration authorities of multiple jurisdictions;

 

•

recessions and other economic crises that may impact Enerflex’s cost of conducting business in those countries;

 

•

the adoption of new, or the expansion of existing, trade restrictions, or embargoes;

 

•

limitations on Enerflex’s ability to repatriate cash, funds, or capital invested or held in jurisdictions outside Canada;

 

•

difficulty or expense of enforcing contractual rights due to the lack of a developed legal system or otherwise;

 

•

confiscation, expropriation, or nationalization of property without fair compensation;

 

•

difficulties in engaging third-party agents to interface with clients or otherwise act on Enerflex’s behalf in certain jurisdictions; and

 

•

failure to comply with applicable anti-corruption, anti-bribery, sanctions, and trade laws.

In addition, Enerflex may expand the business to markets where Enerflex has not previously conducted business. The risks inherent in establishing new business ventures, especially in international markets where local customs, laws, and business procedures present special challenges, may affect Enerflex’s ability to be successful in these ventures.

To the extent Enerflex’s international operations are affected by unexpected or adverse economic, political, and other conditions, Enerflex’s business, financial condition, and results of operations may be adversely affected.

Uncertain geopolitical conditions could adversely affect Enerflex’s results of operations.

As a global supplier of solutions to the energy sector, Enerflex’s business can be adversely impacted by uncertain geopolitical conditions, emerging economic sanctions laws, and other macroeconomic forces. These external factors can cause demand for our products and services to be volatile, cause abrupt changes in our customers’ buying patterns, interrupt Enerflex’s ability to supply products or limit customers’ access to financial resources and ability to satisfy their obligations to us.

Despite this general risk, Enerflex’s business has not been materially impacted by the recent Russian invasion of Ukraine. Enerflex does not currently produce, purchase, or maintain products or services in Russia nor does Enerflex currently sell products or services into Russia. In addition, while Enerflex and its customers operate equipment and facilities which in many instances, depend on the availability of natural gas, the recent curtailment of Russian natural gas to customers outside of Russia has not had a material impact on Enerflex’s operations.

In the event that current or future geopolitical tensions fail to abate or deteriorate further, governmental sanctions may adversely impact economies, banking and monetary systems, markets or customers for products, or the supply and cost of natural gas used by our customers.

Enerflex must comply with Canadian, U.S. and international laws and regulations regarding corruption, anti-bribery and trade compliance and the failure of Enerflex or third party agents contracted by Enerflex in international jurisdictions to comply with such laws could have a material adverse effect on Enerflex.

Enerflex is required to comply with Canadian, U.S., and international laws and regulations regarding corruption, anti-bribery, sanctions, and trade compliance. Enerflex conducts business in many parts of the world that

 

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experience high levels of corruption, relies on third party agents to interface with its clients and otherwise act on Enerflex’s behalf in some jurisdictions where Enerflex does not have a presence, and is subject to various laws that govern the import and export of its equipment from country to country.

While Enerflex has developed policies, procedures and training designed to achieve and maintain compliance with applicable laws, Enerflex could be exposed to investigations, claims, and other regulatory proceedings for alleged or actual violations of laws related to Enerflex operations, including anti-corruption and anti-bribery legislation, trade laws, and sanctions laws. The Canadian government, the U.S. Department of Justice, the SEC, the U.S. Office of Foreign Assets Control, and similar agencies and authorities in other jurisdictions have a broad range of civil and criminal penalties they may seek to impose against companies and individuals for such violations, including injunctive relief, disgorgement, fines, penalties, and modifications to business practices and compliance programs, among other things. While Enerflex cannot accurately predict the impact of any of these factors, if any of those risks materialize, it could have a material adverse effect on Enerflex’s reputation, business, financial condition, results of operations, and cash flow.

Enerflex’s operations entail inherent risks which could result in litigation claims and significant defense and settlement costs associated therewith.

Enerflex’s operations entail inherent risks, including but not limited to equipment defects, malfunctions and failures, and natural disasters that could result in uncontrollable flows of natural gas or well fluids, fires, and explosions. Some of Enerflex’s products are used in hazardous applications where an accident or a failure of a product could cause personal injury or loss of life, or damage to property, equipment, or the environment, as well as the suspension of the end-user’s operations. If Enerflex’s products were to be involved in any of these incidents, Enerflex could face litigation and may be held liable for those losses. In the normal course of Enerflex’s operations, it may become involved in, named as a party to, or be the subject of various legal proceedings, including regulatory proceedings, tax proceedings, and legal actions related to contract disputes, property damage, environmental matters, employment matters, and personal injury. Enerflex may not be able to adequately protect itself contractually and insurance coverage may not be available or adequate in risk coverage or policy limits to cover all losses or liabilities that it may incur. Moreover, Enerflex may not be able to maintain insurance in the future at levels of risk coverage or policy limits that management deems adequate. Any claims made under Enerflex’s policies may cause its premiums to increase. See the section entitled “Risk Factors – Insurance” beginning on page 75. Any future damages deemed to be caused by Enerflex’s products or services that are not covered by insurance, or that are in excess of policy limits or subject to substantial deductibles, could have a material adverse effect on Enerflex’s projections, business, results of operations, and financial condition.

Defense and settlement costs associated with lawsuits and claims can be substantial, even with respect to lawsuits and claims that have no merit. Due to the inherent uncertainty of the litigation process, the resolution of any particular legal proceeding could have an adverse effect on Enerflex’s operating results or financial performance.

Enerflex depends on its information technology and security systems and failures of such systems could have a material adverse effect on Enerflex.

Enerflex is dependent upon the availability, capacity, reliability, and security of information technology infrastructure and Enerflex’s ability to expand and continually update this infrastructure, to conduct daily operations. Information technology assets and protocols become increasingly important to Enerflex as it continues to expand internationally, provide information technology access to global personnel, develop web-based applications and monitoring products, and improve its business software applications. If any such programs or systems were to fail or create erroneous information in Enerflex’s hardware or software network infrastructure, it could have a material adverse effect on Enerflex’s business activities and reputation.

Enerflex may be threatened by or subjected to cyberattack risks such as cyber-fraud, viruses, malware infections, or social engineering activities like phishing and employee impersonation, which may result in adverse outcomes

 

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including, but not limited to, the exposure of sensitive data, disruption of operations and diminished operating results. In recent years, cyberattacks have become more prevalent and much harder to detect and defend against. These threats may arise from a variety of sources, all ranging in sophistication from an individual hacker to alleged state-sponsored attacks. A cyberattack may be generic, or it may be custom-crafted to target the specific information technology used by Enerflex. The occurrence of any such cyberattacks could adversely affect Enerflex’s financial condition, operating results, and reputation.

Enerflex may be targeted by parties using fraudulent spoof and phishing emails to misappropriate Enerflex information, or the information of customers and suppliers, or to introduce viruses or other malware through trojan horse programs into computer networks of Enerflex, its customers or suppliers. These phishing emails may appear upon a cursory review to be legitimate emails sent by a member of Enerflex, its customers or suppliers. If a member of Enerflex or a member of one of its customers or suppliers fails to recognize that a phishing email has been sent or received and responds to or forwards the phishing email, the attack could corrupt the computer networks and/or access confidential information of Enerflex, its customers, employees, and/or suppliers, including passwords, through email or downloaded malware. In addition to spoof and phishing emails, network and storage applications may be subject to unauthorized access by hackers or breached due to operator error, malfeasance, or other system disruptions. It is often difficult to anticipate or immediately detect such incidents and the damage caused by them.

Security measures, such as incident monitoring, vulnerability testing, and response planning, and employee education and training have been implemented to protect Enerflex’s information security and network infrastructure. However, Enerflex’s mitigation measures cannot provide absolute security, and the information technology infrastructure may be vulnerable to criminal cyberattacks or data security incidents due to employee or customer error, malfeasance, or other vulnerabilities. Additionally, Enerflex is reliant on third-party service providers for certain information technology applications. While Enerflex conducts due-diligence and believes that these third-party service providers have adequate security measures, there can be no assurance that these security measures will prevent any cyber events or computer viruses from impacting the applications that Enerflex relies on.

If Enerflex’s information technology systems were to fail and Enerflex was unable to recover in a timely way, Enerflex might be unable to fulfill critical business functions, which could damage Enerflex’s reputation and have a material adverse effect on the business, financial condition, and results of operations. A breach of Enerflex’s information security measures or controls could result in losses of material or confidential information, reputational consequences, financial damages, breaches of privacy laws, higher insurance premiums, damage to assets, safety issues, operational downtime or delays, and revenue losses. The significance of any such event is difficult to quantify, but may in certain circumstances be material to Enerflex and could have adverse effects on Enerflex’s business, financial condition, and results of operations. See the section entitled “Risk Factors – Insurance” beginning on page 75.

Enerflex relies on suppliers to source raw materials, component parts and finished products and any loss of relationship with such suppliers could negatively impact Enerflex’s results or operations and customer relationships.

Enerflex purchases a broad range of materials and components in connection with its manufacturing and service activities. Some of the components used in Enerflex’s products are obtained from a single source or a limited group of suppliers. Where possible, Enerflex sources raw materials and components on a competitive basis with a focus on quality, cost, and availability. However, as required by technical or customer requirements, Enerflex regularly procures some components from original equipment manufacturers on a sole-source basis, including INNIO Waukesha (for engines and parts), INNIO Jenbacher (for gas engines and parts in Canada), Caterpillar (for engines), Ariel Corporation, Howden Group and Frick Company (Johnson Controls Inc.) (each of which supply reciprocating and rotary screw compressors) and Altronic (for ignition and control systems in Canada). While Enerflex and its people make it a priority to maintain and enhance these strategic relationships in its

 

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supply chain, there can be no assurance that these relationships will continue and reliance on suppliers involves several risks, including price increases, delivery delays, inferior component quality, and unilateral termination. In particular, long lead times for high demand components, such as engines, can result in project delays. While Enerflex has long standing relationships with recognized and reputable suppliers, it does not have long-term contracts with all of them, and the partial or complete loss of certain of these sources could have a negative impact on Enerflex’s results of operations and could damage customer relationships. Further, a significant increase in the price of one or more of these components could have a negative impact on Enerflex’s operational or financial results.

Though Enerflex is generally not dependent on any single source of supply, the ability of suppliers to meet performance, quality specifications, and delivery schedules is important to the maintenance of Enerflex customer satisfaction. If the availability of certain original equipment manufacturer (which we refer to as “OEM”) components and repair parts, which are generally in steady demand, is constrained or delayed, certain of Enerflex’s operational or financial results may be adversely impacted.

Enerflex’s business relies and is dependent on its ability to hire and retain qualified personnel and contractors.

Enerflex’s ability to attract and retain qualified personnel and provide the necessary organizational structure, programs, and culture to engage and develop employees is crucial to its growth and achieving its business results.

Enerflex’s engineered systems product line requires skilled engineers and design professionals in order to maintain customer satisfaction through industry leading design, build, and installation of Enerflex’s product offering. Enerflex competes for these professionals, not only with other companies in the same industry, but with oil and natural gas producers and other industries. In periods of high activity, demand for the skills and expertise of these professionals increases, making the hiring and retention of these individuals more difficult.

Enerflex’s service product line relies on the skills and availability of trained and experienced tradespeople, mechanics, and technicians to provide efficient and appropriate services to Enerflex and its customers. Hiring and retaining such individuals is critical to the success of Enerflex’s business. Demographic trends are reducing the number of individuals entering the trades, making Enerflex’s access to skilled individuals more difficult.

There are certain jurisdictions where Enerflex relies on third-party contractors to carry out the operation and maintenance of its equipment. The ability of third-party contractors to find and retain individuals with the proper technical background and training is critical to the continued success of the contracted operations in these jurisdictions. If Enerflex’s third-party contractors are unable to find and retain qualified operators, or the cost of these qualified operators increases substantially, the contract operations business could be materially impacted.

Additionally, in increasing measures, Enerflex is dependent upon the skills and availability of various professional and administrative personnel to meet the increasing demands of the requirements and regulations of various professional and governmental bodies.

There are few barriers to entry in a number of Enerflex’s businesses, so retention of qualified staff is essential in order to differentiate Enerflex’s businesses and compete in its various markets. Enerflex’s success depends on key personnel and its ability to hire and retain skilled personnel. The loss of skilled personnel could delay the completion of certain projects or otherwise adversely impact certain operational and financial results.

Enerflex is exposed to inflation risks which could negatively impact its gross margin and profitability.

Strong economic conditions and competition for available personnel, materials, and major components may result in significant increases in the cost of obtaining such resources. To the greatest extent possible, Enerflex passes such cost increases on to its customers and it attempts to reduce these pressures through proactive supply chain and human resource practices. Should these efforts not be successful, the gross margin and profitability of Enerflex could be adversely affected.

 

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Enerflex is subject to risks inherent in the oil and natural gas services industry which could expose it to substantial liability. To the extent a significant event falls outside the scope of Enerflex’s insurance policies, Enerflex’s results could be materially impacted.

Enerflex’s operations are subject to risks inherent in the oil and natural gas services industry, such as equipment defects, malfunctions and failures, and natural disasters with resultant uncontrollable flows of oil and natural gas, fires, spills, and explosions. These risks could expose Enerflex to substantial liability for personal injury, loss of life, business interruption, property damage, pollution, and other liabilities. Enerflex carries prudent levels of insurance to protect Enerflex against these unforeseen events, subject to appropriate deductibles and the availability of coverage. In addition, Enerflex has procured a dedicated cyber insurance policy designed to help mitigate against the risk of cyber-related events (see Risk Factors – Enerflex depends on its information technology and security systems and failures of such systems could have a material adverse effect on Enerflex) and executive liability insurance to limit exposure to unforeseen incidents. However, there can be no assurance that any such insurance policies will cover all loses or liabilities that may arise from the operation of Enerflex’s business. An annual review of insurance coverage is completed to assess the risk of loss and risk mitigation alternatives.

Extreme weather conditions, natural occurrences, and terrorist activity have strained insurance markets leading to substantial increases in insurance costs and limitations on coverage. It is anticipated that appropriate insurance coverage will be maintained in the future, but there can be no assurance that such insurance coverage will be available on commercially reasonable terms or on terms as favourable as Enerflex’s current arrangements. The occurrence of a significant event outside of the scope of coverage of the Enerflex insurance policies could have a material adverse effect on the results of the organization.

Significant instability or disruptions to capital markets, including credit markets, may impact Enerflex’s ability to access the capital required to continue its operations.

Enerflex relies on its cash, as well as the credit and capital markets to provide some of the capital required to continue operations. Enerflex relies on its bank facility, asset-based facility and senior notes to meet its funding and liquidity requirements. Enerflex’s bank facility, which is senior unsecured indebtedness and is subject to floating rates of interest, is due on June 30, 2023 in respect of $65.0 million and June 30, 2025 in respect of the remaining $660.0 million, and may be renewed annually with the consent of the lenders. The asset-based facility, which is subject to floating interest rates, is secured by certain assets of an Enerflex subsidiary band is non-recourse to Enerflex. The senior notes, which are also senior unsecured indebtedness of the organization, mature as follows: U$105.0 million and C$15.0 million of seven-year notes mature on December 15, 2024; and U$70.0 million and C$30.0 million of ten-year notes mature on December 15, 2027. As of December 31, 2021, Enerflex had $266.9 million in senior notes issued and outstanding, $37.4 million outstanding on its asset-based facility, and $30.5 million outstanding on its bank facility.

Significant instability or disruptions to the capital markets, including the credit markets, may impact Enerflex’s ability to successfully renegotiate all or part of its bank facility prior to its due date which could have important adverse consequences including:

 

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Making it more difficult to satisfy contractual obligations;

 

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Increasing vulnerability to general adverse economic conditions and industry conditions;

 

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Limiting the ability to fund future working capital, capital expenditures or acquisitions;

 

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Limiting the ability to refinance debt in the future or borrow additional funds to fund ongoing operations; and

 

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Paying future dividends to shareholders.

As at December 31, 2021, Enerflex had $681.5 million combined available in borrowing base on its bank facility and asset-based facility.

 

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Enerflex’s bank facility and the note purchase agreement also contain a number of covenants and restrictions with which Enerflex and its subsidiaries must comply, including, but not limited to, use of proceeds, limitations on the ability to incur additional indebtedness, transactions with affiliates, mergers and acquisitions, and Enerflex’s ability to sell assets. Enerflex’s ability to comply with these covenants and restrictions may be affected by events beyond its control, including prevailing economic, financial, and industry conditions. If market or other economic conditions deteriorate, Enerflex’s ability to comply with these covenants may be impaired. Failure to meet any of these covenants, financial ratios, or financial tests could result in events of default under each agreement which require Enerflex to repay its indebtedness under those agreements and could impair Enerflex’s ability to access the capital markets for financing. While Enerflex is currently in compliance with all covenants, financial ratios, and financial tests, there can be no assurance that it will be able to comply with these covenants, financial ratios, and financial tests in future periods. These events could restrict Enerflex’s and other guarantors’ ability to fund its operations, meet its obligations associated with financial liabilities, or declare and pay dividends.

Future Acquisitions

Enerflex may, from time to time, seek to expand its business and its operations by acquiring or developing additional businesses or assets in existing or new markets. Enerflex expects to realize strategic opportunities and other benefits as a result of its acquisitions. However, there can be no assurances as to whether, or to what extent, such benefits or opportunities will be realized. Enerflex can not predict whether it will be able to successfully identify, acquire, develop or profitably manage additional acquisitions, or successfully integrate any acquired business or assets into Enerflex’s business, or to adjust to an increased scope of operations as a result of such acquisitions. There is a risk that any future acquisitions could adversely impact Enerflex’s operations and results.

The payment of future cash dividends by Enerflex may vary depending on various factors and conditions beyond Enerflex’s control and the reduction or suspension of cash dividends by Enerflex would negatively impact the market value of the Enerflex common shares.

The amount and frequency of future cash dividends paid by Enerflex, if any, is subject to the discretion of the Enerflex board and may vary depending on a variety of factors and conditions existing from time to time, including, among other things, significant declines and volatility in commodity prices, demand for Enerflex products and services, restricted cash flows, capital expenditure requirements, debt service requirements, operating costs, foreign exchange rates, the risk factors set forth herein and the satisfaction of the liquidity and solvency tests imposed by applicable corporate law for the declaration and payment of dividends. Depending on these and various other factors, many of which are beyond the control of Enerflex, future cash dividends could be reduced or suspended entirely or made less frequently. The market value of the Enerflex common shares may deteriorate if cash dividends are reduced or suspended.

Enerflex is exposed to foreign currency risks including transaction exposure and translation exposure.

Enerflex reports its financial results to the public in Canadian dollars; however, a significant percentage of its revenues and expenses are denominated in currencies other than Canadian dollars. Enerflex identifies and hedges all significant transactional currency risks.

Transaction exposure

The Canadian operations of Enerflex source the majority of their products and major components from the United States. Consequently, reported costs of inventory and the transaction prices charged to customers for equipment and parts are affected by the relative strength of the Canadian dollar. Enerflex also sells compression and processing packages in foreign currencies, primarily the U.S. dollar. Most of Enerflex’s international orders are manufactured in the United States where the contracts are primarily denominated in U.S. dollars. This minimizes Enerflex’s foreign currency exposure on these contracts.

 

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Enerflex has implemented a hedging policy, applicable primarily to the Canadian operations, with the objective of securing the margins earned on awarded contracts denominated in currencies other than Canadian dollars. In addition, Enerflex may hedge input costs that are paid in a currency other than the home currency of the subsidiary executing the contract. Enerflex utilizes a combination of foreign denominated debt and currency forward contracts to meet its hedging objective.

Translation exposure

Enerflex’s earnings from and net investment in foreign subsidiaries are exposed to fluctuations in exchange rates. The currencies with the most significant impact are the U.S. dollar, Australian dollar, and Brazilian real.

Assets and liabilities of foreign subsidiaries are translated into Canadian dollars using the exchange rates in effect at the balance sheet dates. Unrealized translation gains and losses are deferred and included in accumulated other comprehensive income. The cumulative currency translation adjustments are recognized in earnings when there has been a reduction in the net investment in the foreign operations.

Earnings from foreign operations are translated into Canadian dollars each period at average exchange rates for the period. As a result, fluctuations in the value of the Canadian dollar relative to these other currencies will impact reported net earnings. Such exchange rate fluctuations could be material year-over-year relative to the overall earnings or financial position of Enerflex.

Enerflex may be subject to new or additional income or other tax levies that may fluctuate and impact its results of operations and cash flows.

Enerflex and its subsidiaries are subject to income and other taxes in Canada, the United States, and numerous foreign jurisdictions. Changes in tax laws or interpretations thereof or tax rates in the jurisdictions in which Enerflex or its subsidiaries do business could adversely affect Enerflex’s results from operations, returns to shareholders, and cash flow. Enerflex’s effective tax rates could also be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation. While management believes Enerflex and its subsidiaries are in compliance with current prevailing tax laws and requirements, one or more taxing jurisdictions could seek to impose incremental or new taxes on Enerflex or its subsidiaries or Enerflex or its subsidiaries could be subject to assessment, reassessment, audit, investigation, inquiry or judicial or administrative proceedings by any such taxing jurisdiction. The timing or impacts of any such assessment, reassessment, audit, investigation, inquiry or judicial or administrative proceedings or any future changes in tax laws, including the impacts of proposed regulations, cannot be predicted. Any adverse tax developments, including legislative changes, judicial holdings, or administrative interpretations, could have a material and adverse effect on the results of operations, financial condition, and cash flows of Enerflex. Enerflex’s long-term debt may be subject to fluctuations in interest rates.

Enerflex’s liabilities include long-term debt that may be subject to fluctuations in interest rates. Enerflex’s senior notes outstanding at December 31, 2021 are at fixed interest rates and therefore will not be impacted by fluctuations in market interest rates. Enerflex’s bank facility, however, is subject to changes in market interest rates. As at December 31, 2021 Enerflex had $67.9 million of indebtedness that is effectively subject to floating interest rates. Changes in economic conditions outside of Enerflex’s control could result in higher interest rates, thereby increasing Enerflex’s interest expense which may have a material adverse impact on Enerflex’s financial results, financial condition, or ability to declare and pay dividends. See the section entitled “Dividends – Restrictions on Paying Dividends” beginning on page 136.

For each one percent change in the rate of interest on the bank and asset-based facilities, the change in interest expense for the twelve months ended December 31, 2021 would be approximately $0.7 million. All interest

 

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charges are recorded in finance costs on the consolidated statements of earnings. Any increase in market interest rates could have a material adverse impact on Enerflex’s financial results, financial condition, or ability to declare and pay dividends.

Terrorism could prevent Enerflex from meeting its financial and other obligations.

Terrorist activities (including environmental terrorism), anti-terrorist efforts, and other armed conflicts may adversely affect the global economies and could prevent Enerflex from meeting its financial and other obligations to the extent such conflicts impact operations. If any of these events occur, the resulting political instability and societal disruption could reduce overall demand for oil and natural gas, potentially putting downward pressure on demand for Enerflex’s products and services and causing a reduction in Enerflex’s revenues. In addition, Enerflex’s assets may be direct targets of terrorist attacks that could disrupt Enerflex’s ability to service its customers. Enerflex may be required by regulators or by the future terrorist threat environment to make investments in security that cannot be predicted. The implementation of security guidelines and measures and the maintenance of insurance, to the extent available, to address such activities could increase Enerflex’s costs. These types of events could materially adversely affect Enerflex’s business and results of operations.

Seasonal factors impact demand for natural gas and negatively impact the demand for Enerflex’s products and services.

Demand for natural gas fluctuates largely with the heating and electric power requirements caused by the changing seasons in North America. Hot summers and cold winters typically increase demand for, and the price of, natural gas. This increases customers’ cash flow, which can have a positive impact on Enerflex. At the same time, access to many western Canadian oil and natural gas properties is limited to the period when the ground is frozen so that heavy equipment can be transported. As a result, the first quarter of the year is generally accompanied by increased winter deliveries of equipment. Warm winters in western Canada, however, can both reduce demand for natural gas and make it difficult for producers to reach well locations. This restricts drilling and development operations, reduces the ability to supply natural gas production in the short-term, and can negatively impact the demand for Enerflex’s products and services.

Risks Relating to Investing in and Ownership of the Enerflex Common Shares

The Enerflex common shares have no trading history in the United States.

The Enerflex common shares currently trade on the TSX. It is a condition to the completion of the merger that the Enerflex common shares issued pursuant to the Merger Agreement be conditionally approved for listing on the NYSE or Nasdaq, in addition to the TSX. Prior to the completion of the merger, there has been no public market in the United States for the Enerflex common shares. The price at which the Enerflex common shares will trade on the NYSE may be lower than the value for which they are exchanged at the closing of the merger. In addition, because the liquidity and trading patterns of securities listed on the TSX may be substantially different from those of securities traded on the NYSE, historical trading prices may not be indicative of the prices at which the Enerflex common shares will trade in the future on the NYSE.

The Enerflex common shares will be traded on more than one market and this may result in price variations.

Trading in the Enerflex common shares on the NYSE and TSX will take place in different currencies (U.S. dollars on the NYSE and Canadian dollars on the TSX), and at different times (resulting from different trading days and different public holidays in the United States and Canada). The trading prices of the Enerflex common shares on these two markets may at times differ due to these and other factors. Any decrease in the price of the Enerflex common shares on the TSX could cause a decrease in the trading price of the Enerflex common shares on the NYSE and vice versa. There can be no assurance that the expected benefits of listing the Enerflex common shares on the NYSE will be realized or, if realized, that such benefits will be sustained.

 

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The market price of the Enerflex common shares following the consummation of the merger could be volatile and Exterran stockholders could lose all or part of their investment.

Notwithstanding the fact that Enerflex will issue a significant number of Enerflex common shares to stockholders of Exterran in connection with the merger, there is no guarantee that a significant market for the Enerflex common shares will develop or be sustained on the NYSE following the merger. Exterran stockholders may decide to sell the Enerflex common shares received by them in the merger, which will generally be eligible for immediate resale, rather than remain shareholders of Enerflex, which could have an adverse impact on the trading price of the Enerflex common shares. As Enerflex is a Canadian company and is not as well-known to investors in the United States as it is in Canada, investors in Canada may be more likely to purchase any Enerflex common shares sold by Exterran stockholders following the merger. If a substantial portion of the Enerflex common shares issued to Exterran stockholders are sold to investors in Canada, this may have a material adverse effect on the trading price of the Enerflex common shares following the merger. In addition, a perception among investors that such sales will occur could depress the market price of the common shares prior to the issuance of Enerflex common shares in connection with the merger. In the past, following periods of large price declines in the public market price of a company’s securities, securities class action litigation has often been initiated against that company. Litigation of this type against Enerflex could result in substantial costs and diversion of management’s attention and resources, which would adversely affect its business. Any adverse determination in litigation against Enerflex could also subject it to significant liabilities.

As a foreign private issuer, Enerflex is permitted, and intends, to follow certain home country corporate governance practices instead of otherwise applicable SEC and NYSE requirements, which may result in less protection than is accorded to investors under rules applicable to U.S. domestic issuers.

As a foreign private issuer, in reliance on NYSE rules that permit a foreign private issuer to follow the corporate governance practices of its home country, Enerflex will be permitted to follow certain Canadian corporate governance practices instead of those otherwise required under the corporate governance standards for U.S. domestic issuers. Following the listing of the Enerflex common shares on the NYSE, Enerflex expects to follow Canadian home country practices with regard to matters such as obtaining shareholder approval for certain dilutive events. Accordingly, Enerflex’s shareholders may not be afforded the same protection as provided under NYSE corporate governance rules. Following Canadian home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the NYSE may provide less protection than is accorded to investors in U.S. domestic issuers.

As a foreign private issuer, Enerflex will not be subject to the provisions of Regulation FD or U.S. proxy rules and will be exempt from filing certain U.S. Exchange Act reports, which could result in the Enerflex common shares being less attractive to investors.

As a foreign private issuer, Enerflex will be exempt from a number of requirements under U.S. securities laws that apply to public companies that are not foreign private issuers. In particular, Enerflex will be exempt from the rules and regulations under the U.S. Exchange Act related to the furnishing and content of proxy statements, and Enerflex’s officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the U.S. Exchange Act. In addition, Enerflex will not be required under the U.S. Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the U.S. Exchange Act and Enerflex will generally be exempt from filing quarterly reports with the SEC under the U.S. Exchange Act. Enerflex will also be exempt from the provisions of Regulation FD, which prohibits the selective disclosure of material nonpublic information to, among others, broker-dealers and holders of a company’s securities under circumstances in which it is reasonably foreseeable that the holder will trade in Enerflex’s securities on the basis of the information. Even though Enerflex intends to comply voluntarily with Regulation FD, these exemptions and leniencies will reduce the frequency and scope of information and protections to which you are entitled as an investor.

 

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Enerflex would lose its foreign private issuer status if a majority of its shares are held by U.S. persons and a majority of its directors or executive officers are U.S. citizens or residents or Enerflex fails to meet additional requirements necessary to avoid loss of foreign private issuer status. Although Enerflex has elected to comply with certain U.S. regulatory provisions, loss of foreign private issuer status would make compliance with such provisions mandatory. The regulatory and compliance costs to Enerflex under U.S. securities laws as a U.S. domestic issuer may be significantly higher than the costs Enerflex incurs as a Canadian foreign private issuer eligible to use the Multi-Jurisdictional Disclosure System, or MJDS. If Enerflex ceases to be a foreign private issuer, it would not be eligible to use the MJDS or other foreign issuer forms and will be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. Enerflex may also be required to modify certain of its policies to comply with the governance obligations of U.S. domestic issuers. Such modifications will involve additional costs. In addition, Enerflex would lose its ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

Enerflex has not yet completed its determination regarding whether its existing internal controls over financial reporting are compliant with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Enerflex maintains disclosure controls and procedures and internal control over financial reporting pursuant to the Canadian Securities Administrators National Instrument 52-109—Certification of Disclosure in Issuers’ Annual and Interim Filings, and has commenced an assessment of whether its current internal controls procedures satisfy the requirements of Section 404(a) of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, and the related rules of the SEC and the Public Company Accounting Oversight Board.

Pursuant to Section 404(b) of Sarbanes-Oxley and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, starting with the second annual report that Enerflex files with the SEC after the effectiveness of the registration statement of which this proxy statement/prospectus forms a part, Enerflex’s independent auditors will be required to attest to the effectiveness of Enerflex’s internal control over financial reporting. The process of obtaining the required attestation from Enerflex’s independent auditors has commenced and will require the investment of substantial additional time and resources, including by Enerflex’s Chief Financial Officer and other members of Enerflex’s senior management, as well as higher than anticipated operating expenses including independent auditor fees. Enerflex’s failure to satisfy the requirements of Section 404 of Sarbanes-Oxley on an ongoing and timely basis, or any failure in Enerflex’s internal controls, could result in the loss of investor confidence in the reliability of Enerflex’s financial statements, which in turn could negatively affect the trading price of the Enerflex common shares and could have a material adverse effect on Enerflex’s results of operations and harm its reputation. Further, Enerflex can provide no assurance that its independent auditors will provide the required attestation. If Enerflex is required in the future to make changes to its internal controls over financial reporting, it could adversely affect Enerflex’s operations, financial reporting and/or results of operations and could result in an adverse opinion on internal controls over financial reporting from its independent auditors.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

From time to time, Enerflex and Exterran make written or oral forward-looking statements within the meaning of certain securities laws, including the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. This proxy statement/prospectus, including information incorporated by reference into this proxy statement/prospectus, may contain certain forward-looking statements and forward-looking information (which we refer to as “FLI”) to provide Enerflex and Exterran shareholders/stockholders (as applicable) and potential investors with information about Enerflex, Exterran and their respective subsidiaries and affiliates, including each company’s management’s respective assessment of Enerflex, Exterran and their respective subsidiaries’ future plans and operations, which FLI may not be appropriate for other purposes. FLI is typically identified by words such as “anticipate,” “expect,” “project,” “estimate,” “forecast,” “plan,” “intend,” “target,” “believe,” “likely,” “anticipate” and similar words suggesting future outcomes or statements regarding an outlook. All statements other than statements of historical fact may be FLI.

Although we believe that the FLI is reasonable based on the information available today and processes used to prepare it, such statements are not guarantees of future performance and you are cautioned against placing undue reliance on FLI. By its nature, FLI involves a variety of assumptions, which are based upon factors that may be difficult to predict and that may involve known and unknown risks and uncertainties and other factors which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by these FLI, including, but not limited to, the following: the timing and completion of the transaction, including receipt of regulatory and shareholder/stockholder approvals and the satisfaction of other conditions precedent; the potential of a topping bid; the realization of anticipated benefits and synergies of the transaction and the timing and quantum thereof; the success of integration plans and the time it takes to implement such integration plans; the focus of management time and attention on the transaction and other disruptions arising from the transaction; changes in business strategy and strategic opportunities; estimated future dividends; financial strength and flexibility; debt and equity market conditions, including the ability to access capital markets on favorable terms or at all; cost of debt and equity capital; potential changes in the Enerflex share price which may negatively impact the value of consideration offered to Exterran stockholders; the ability of management of Enerflex, its subsidiaries and affiliates to execute key priorities, including those in connection with the transaction; general Canadian, U.S., and global social, economic, political, credit and business conditions; the availability and price of energy commodities; the effects of competition and pricing pressures; North American and global economic growth; industry capacity; shifts in market demand; changes in commodity prices and commodity demand; inflation; geopolitical instability; changes in laws, regulations and government policies; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of investigations, proceedings or other types of claims and litigation; compliance with environmental regulations; labor disputes; changes in labor costs and labor difficulties; timing of completion of capital and maintenance projects; sufficiency of budgeted capital expenditures in carrying out business plans; services and infrastructure; the satisfaction by third parties of their obligations; currency and interest rate fluctuations; exchange rates; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; trade restrictions or other changes to international trade arrangements; the effects of current and future multinational trade agreements; climate change and the market and regulatory responses to climate change; operational performance and reliability; customer, shareholder, regulatory and other stakeholder approvals and support; regulatory and legislative decisions and actions; public opinion; various events that could disrupt operations, including severe weather, such as droughts, floods, avalanches and earthquakes, and cybersecurity attacks, as well as security threats and governmental response to them, and technological changes; acts of terrorism, war or other acts of violence or crime or risk of such activities; insurance coverage limitations; material adverse changes in economic and industry conditions, including the availability of short- and long-term financing; and the pandemic created by the COVID-19 pandemic and the emergence of various variants, and resulting effects on economic conditions, the demand environment for logistics requirements and energy prices, restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions, and disruptions to global supply chains.

 

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We caution that the foregoing list of factors is not exhaustive and is made as of the date hereof. Additional information about these and other assumptions, risks and uncertainties can be found in reports and filings by Enerflex and Exterran with Canadian and U.S. securities regulators, including any proxy statement, prospectus, material change report, management information circular or registration statement to be filed in connection with the transaction. Reference should be made to “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward Looking Statements” in Exterran’s annual and interim reports on Form 10-K and 10-Q. Due to the interdependencies and correlation of these factors, as well as other factors, the impact of any one assumption, risk or uncertainty on FLI cannot be determined with certainty.

Except to the extent required by law, we assume no obligation to publicly update or revise any FLI, whether as a result of new information, future events or otherwise. All FLI in this proxy statement/prospectus is expressly qualified in its entirety by these cautionary statements.

For additional information about factors that could cause Enerflex’s and Exterran’s results to differ materially from those described in the forward-looking statements, please see the section entitled “Risk Factors,” on page 54 as well as in the reports that Exterran and Enerflex have filed with the SEC and SEDAR, as applicable, described in the section entitled “Where You Can Find Additional Information,” on page 370.

 

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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

Enerflex common shares are currently listed on the TSX under the symbol “EFX” and Exterran common stock is currently listed on the NYSE under the symbol “EXTN.”

The table below sets forth, for the periods indicated, the per share high and low sales prices for Enerflex common shares as reported on the TSX and for Exterran common stock as reported on the NYSE, in each case based on closing prices.

 

		Enerflex Common Shares TSX								Exterran Common Stock NYSE
		High				Low				High				Low
		(in C$)								(in US$)
Annual information for the past five calendar years
2021			11.02				6.51				5.70				2.84
2020			12.22				4.52				8.69				3.35
2019			20.00				10.30				19.70				5.20
2018			18.39				13.69				33.10				17.00
2017			20.34				14.56				33.89				23.51
Quarterly information for the past quarter and the past two years
2022
Second Quarter			9.55				6.07				7.60				4.30
First Quarter			8.68				6.47				6.65				3.00
2021
Fourth Quarter			11.02				7.16				5.19				2.84
Third Quarter			9.43				6.77				4.94				3.47
Second Quarter			8.94				7.51				5.45				2.87
First Quarter			9.58				6.51				5.70				3.36
2020
Fourth Quarter			7.57				4.67				5.13				3.35
Third Quarter			6.31				4.62				5.94				4.03
Second Quarter			6.84				4.52				8.69				3.52
First Quarter			12.22				4.81				8.50				4.60

The above table shows only historical data. The data may not provide meaningful information to Exterran stockholders in determining whether to adopt the Merger Agreement. Exterran stockholders are urged to obtain current market quotations for Exterran common stock and Enerflex common shares and to review carefully the other information contained in, or incorporated by reference into, this proxy statement/prospectus, when considering whether to adopt the Merger Agreement. For more information, see the section entitled “Where You Can Find Additional Information,” on page 370.

 

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The following table presents the closing price per share of Enerflex common shares on the TSX and of Exterran common stock on the NYSE on (a) January 21, 2022, the last full trading day prior to the public announcement of the signing of the Merger Agreement, and (b) September 8, 2022, the last practicable trading day prior to the mailing of this proxy statement/prospectus. This table also shows the implied value of the merger consideration payable for each share of Exterran common stock, which was calculated by multiplying the closing price of Enerflex common shares on the TSX on those dates by the exchange ratio.

 

Date		Enerflex common shares TSX				Exterran common stock NYSE				Equivalent value of merger consideration per share of Exterran stock based on price of Enerflex common shares on TSX
		(C$)				(US$)				(C$)
January 21, 2022			7.90				3.00				8.066
September 8, 2022			6.56				4.83				6.6978

Exterran stockholders will not receive the merger consideration until the effective time, which may occur a substantial period of time after the Exterran special meeting, or not at all. There can be no assurance as to the trading prices of Exterran common stock or Enerflex common shares at the effective time. The market prices of Exterran common stock and Enerflex common shares are likely to fluctuate prior to the effective time and cannot be predicted. We urge you to obtain current market quotations for both Exterran common stock and Enerflex common shares.

Exterran has never paid a dividend, and the Merger Agreement prohibits Exterran from paying any dividends to its stockholders without Enerflex’s consent. The table below sets forth the dividends declared per Enerflex common share for the periods indicated.

 

		Enerflex				Enerflex
		(C$)				(US$)*
Year Ended December 31,
2021			.085				.067
2020			.175				.137
2019			.430				.331
2018			.390				.286
2017			.350				.279

 

*	Based on Enerflex annual dividend converted to US$ at the Canadian dollar/U.S. dollar annual exchange rate, as reported by the Bank of Canada.

 

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THE EXTERRAN SPECIAL MEETING

This proxy statement/prospectus is being provided to Exterran stockholders in connection with the solicitation of proxies by the Exterran board for use at the Exterran special meeting and at any adjournments or postponements of the Exterran special meeting. Exterran stockholders are encouraged to read the entire document carefully, including the annexes to and documents incorporated by reference into this document, for more detailed information regarding the Merger Agreement and the transactions contemplated by the Merger Agreement.

Date, Time and Place of the Exterran Special Meeting

The Exterran special meeting is scheduled to be held virtually via the internet at http://www.proxydocs.com/EXTN, on October 11, 2022, beginning at 8:00 am, Central Time, unless adjourned or postponed to a later date.

In light of ongoing developments with respect to the COVID-19 (coronavirus) pandemic, Exterran has elected to hold the Exterran special meeting solely by means of remote communication (via the internet). The Exterran special meeting will be held solely via live audio webcast and there will not be a physical meeting location. Exterran stockholders will be able to attend the Exterran special meeting online and vote their shares electronically by visiting the special meeting website at www.proxydocs.com/EXTN. Exterran stockholders will need the control number found on their proxy card in order to access the special meeting website.

Exterran will entertain questions at the Exterran special meeting in accordance with the rules of conduct for the meeting to the extent that the questions posed by a stockholder are relevant to the Exterran special meeting and the proposals presented. Any questions or comments that are unrelated to the business of the Exterran special meeting will not be addressed at the meeting.

Purpose of the Exterran Special Meeting

At the Exterran special meeting, Exterran stockholders will be asked to consider and vote on the following proposals, which we collectively refer to as the “Exterran proposals”:

 

•

Proposal 1: Adoption of the Merger Agreement. To consider and vote on the Exterran merger proposal;

 

•

Proposal 2: Approval, on an Advisory (Non-Binding) Basis, of Certain Merger-Related Compensatory Arrangements with Exterran’s Named Executive Officers. To consider and vote on the advisory Exterran compensation proposal; and

 

•

Proposal 3: Adjournment of the Exterran Special Meeting. To consider and vote on the Exterran adjournment proposal.

Recommendation of the Exterran Board

The Exterran board unanimously recommends that Exterran stockholders vote:

 

•

Proposal 1: “FOR” the Exterran merger proposal;

 

•

Proposal 2: “FOR” the Exterran compensation proposal; and

 

•

Proposal 3: “FOR” the Exterran adjournment proposal.

At a special meeting of the Exterran board held on January 23, 2022, the Exterran board unanimously: (1) determined that it was advisable and fair to, and in the best interests of, Exterran and its stockholders to enter into the Merger Agreement; (2) approved the execution, delivery and performance of the Merger Agreement and the transactions contemplated by the Merger Agreement; (3) recommended that the stockholders of Exterran approve the adoption of the Merger Agreement; and (4) directed that the Merger Agreement be submitted to a vote at a meeting of Exterran’s stockholders.

 

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See also the section entitled “The Exterran Merger Proposal—Exterran’s Reasons for the Transaction; Recommendation of the Exterran Board,” on page 113.

Record Date and Outstanding Shares of Exterran Voting Stock

The record date to determine stockholders who are entitled to receive notice of and to vote at the Exterran special meeting or any adjournments or postponements thereof is September 7, 2022. As of the record date, there were 33,313,473 shares of Exterran common stock issued and outstanding and eligible to vote at the Exterran special meeting. Each Exterran stockholder is entitled to one vote for each share of Exterran common stock held of record as of the record date.

Quorum; Abstentions and Broker Non-Votes

A quorum of Exterran stockholders is necessary to conduct the Exterran special meeting. The presence (including virtually) or representation by proxy, of the holders of a majority of the aggregate voting power of the Exterran common stock issued and entitled to vote at the Exterran special meeting will constitute a quorum. Shares of Exterran common stock represented at the Exterran special meeting by attendance via the special meeting website or represented by proxy and entitled to vote, but not voted, including shares for which a stockholder directs an “abstention” from voting, will be counted for purposes of determining a quorum. However, because all of the Exterran proposals are considered “non-routine” matters under NYSE rules (as described below), shares held in “street name” will not be counted as present for the purpose of determining the existence of a quorum unless the stockholder provides their bank, broker or other nominee with voting instructions for at least one of the proposals before the Exterran special meeting. If a quorum is not present, the Exterran special meeting may be adjourned or postponed until the holders of the number of shares of Exterran common stock required to constitute a quorum attend.

Under the NYSE rules, banks, brokers or other nominees who hold shares in “street name” on behalf of the beneficial owner of such shares have the authority to vote such shares in their discretion on certain “routine” proposals when they have not received voting instructions from the beneficial owners. However, banks, brokers or other nominees are not allowed to exercise their voting discretion with respect to matters that under the NYSE rules, as applicable, are “non-routine.” This can result in a “broker non-vote”, which occurs on an item when (i) a bank, broker or other nominee has discretionary authority to vote on one or more “routine” proposals to be voted on at a meeting of stockholders, but is not permitted to vote on other “non-routine” proposals without instructions from the beneficial owner of the shares and (ii) the beneficial owner fails to provide the bank, broker or other nominee with voting instructions on a “non-routine” matter. All of the Exterran proposals are considered “non-routine” matters under the NYSE rules, and banks, brokers or other nominees will not have discretionary authority to vote on any matter before the meeting. As a result, Exterran does not expect any broker non-votes at the Exterran special meeting and, if you hold your shares of Exterran common stock in “street name”, your shares will not be represented and will not be voted on any matter unless you affirmatively instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instructions provided by your bank, broker or other nominee. It is therefore critical that you cast your vote by instructing your bank, broker or other nominee on how to vote. Brokers will not be able to vote on any of the Exterran proposals unless they have received voting instructions from the beneficial owners.

Required Vote

Except for the Exterran adjournment proposal, the vote required to approve each of the Exterran proposals listed below assumes the presence of a quorum at the Exterran special meeting. As described above, Exterran does not expect there to be any broker non-votes at the Exterran special meeting.

 

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Proposal		Required Vote		Effect of Certain Actions
Proposal 1: Exterran Merger Proposal		Under Delaware law, approval requires the affirmative vote of at least a majority of the shares of Exterran common stock outstanding as of the record date and entitled to vote on the Exterran merger proposal (assuming a quorum is present).		Shares of Exterran common stock not present at the Exterran special meeting, shares that are present and not voted on the Exterran merger proposal, including due to the failure of any Exterran stockholder who holds their shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to the Exterran merger proposal, and abstentions will have the same effect as a vote “AGAINST” the Exterran merger proposal.
Proposal 2: Exterran Compensation Proposal		Pursuant to Exterran’s bylaws, approval requires the affirmative vote of at least a majority of the votes cast affirmatively or negatively on the Exterran compensation proposal.		Assuming a quorum is present, the failure to return or submit your proxy or to attend the Exterran special meeting will have no effect on the Exterran compensation proposal.   The failure of any shares present or represented by proxy at the Exterran special meeting to vote affirmatively or negatively on the Exterran compensation proposal will have no effect on such proposal.
Proposal 3: Exterran Adjournment Proposal		Pursuant to Exterran’s bylaws, assuming a quorum is present at the Exterran special meeting, approval of the Exterran adjournment proposal requires the affirmative vote of at least a majority of the votes cast affirmatively or negatively on the Exterran adjournment proposal.   If a quorum is not present, the Exterran adjournment proposal requires the approval of the stockholders present at the Exterran special meeting, by the		Whether or not a quorum is present, the failure to return or submit your proxy or to attend the Exterran special meeting will have no effect on the Exterran adjournment proposal.   Assuming a quorum is present, the failure of any shares present or represented by proxy at the Exterran special meeting to vote affirmatively or negatively on the Exterran adjournment proposal will have no effect on such proposal.

 

- 90 -

Proposal		Required Vote		Effect of Certain Actions
		affirmative vote of the holders of a majority in voting power thereof; provided that the chairperson of the Exterran special meeting may also adjourn such meeting in accordance with Exterran’s bylaws.		Assuming a quorum is not present, the failure of any shares present or represented by proxy at the Exterran special meeting to vote affirmatively on the Exterran adjournment proposal will be treated as a vote “AGAINST” the Exterran adjournment proposal.

Adjournment and Postponement

If there are not sufficient votes at the time of the Exterran special meeting to approve the Exterran merger proposal or for certain other reasons, then Exterran stockholders may be asked to vote on the Exterran adjournment proposal.

At any subsequent reconvening of the Exterran special meeting at which a quorum is present, any business may be transacted that might have been transacted at the original meeting and all proxies will be voted in the same manner as they would have been voted at the original convening of the Exterran special meeting, except for any proxies that have been effectively revoked prior to the time the proxy is voted at the reconvened meeting.

Voting by Directors and Executive Officers

As of September 8, 2022 the latest practicable date prior to the date of this proxy statement/prospectus, Exterran directors and executive officers, and their affiliates, as a group, owned and were entitled to vote approximately 4.2% of the total outstanding shares of Exterran common stock. The Exterran directors and executive officers have entered into a voting agreement obligating them to vote their shares “FOR” the Exterran merger proposal, “FOR” the Exterran compensation proposal and “FOR” the Exterran adjournment proposal. See the sections entitled “Voting Agreements” and “The Exterran Merger Proposal—Interests of Exterran’s Directors and Executive Officers in the Transaction,” on pages 183 and 129, respectively.

Voting by Proxy or in Person (Including Virtually)

Voting and Submitting a Proxy for Exterran Voting Stock Held by Holders of Record

If you are an Exterran stockholder of record, you may vote at the Exterran special meeting by proxy through the internet, by telephone or by mail, or by attending the Exterran special meeting and voting via the special meeting website, as described below.

 

•

By Internet: By visiting the internet address provided on the proxy card and following the instructions provided on your proxy card.

 

•

By Telephone: By calling the number located on the proxy card and following the recorded instructions.

 

•

By Mail: You may complete, sign, date and return by mail the enclosed proxy card in the envelope provided to you with your proxy materials.

 

•

Via the Special Meeting Website: All stockholders of record may vote at the Exterran special meeting by attending the meeting via the special meeting website. Stockholders who plan to attend the Exterran special meeting will need the control number included on their proxy card in order to access the special meeting website and to attend and vote thereat.

Unless properly and timely revoked in one of the manners set forth in the section entitled “The Exterran Special Meeting—Revocability of Proxies and Changes to an Exterran Stockholder’s Vote,” on page 92, all duly

 

- 91 -

executed proxies representing shares of Exterran common stock entitled to vote will be voted at the Exterran special meeting and, where a choice has been specified on the proxy card, will be voted in accordance with such specification. By executing and delivering a proxy in connection with the Exterran special meeting, you designate certain Exterran officers identified therein as your proxies at the Exterran special meeting. If you submit an executed proxy without providing instructions with respect to any proposal, then the Exterran officers identified on the proxy will vote your shares consistent with the recommendation of the Exterran board on such proposal. If you are a stockholder of record, proxies submitted over the internet or by telephone as described above must be received before the commencement of the Exterran special meeting. To reduce administrative costs and help the environment by conserving natural resources, Exterran asks that you vote through the internet or by telephone.

Exterran does not expect that any matter other than the Exterran proposals will be brought before the Exterran special meeting, and the Exterran bylaws provide that the only business that may be conducted at the Exterran special meeting are those proposals brought before the meeting pursuant to Exterran’s notice of meeting.

Voting and Submitting a Proxy for Exterran Voting Stock Held in “Street Name”

If you hold your shares through a bank, broker or other nominee in “street name” instead of as a registered holder, you must follow the voting instructions provided by your bank, broker or other nominee in order to vote your shares. Your voting instructions must be received by your bank, broker or other nominee prior to the deadline set forth in the information from your bank, broker or other nominee on how to submit voting instructions. If you do not provide voting instructions to your bank, broker or other nominee with respect to a proposal, your shares of Exterran common stock will not be voted on that proposal as your bank, broker or other nominee does not have discretionary authority to vote on any of the Exterran proposals; see the section entitled “The Exterran Special Meeting—Quorum; Abstentions and Broker Non-Votes,” on page 89.

If you wish to attend the special meeting to personally vote your shares held in “street name” via the special meeting website, you will need to obtain a proxy from the holder of record (i.e. your broker, bank or other nominee); a proxy is not the form of proxy card enclosed with this proxy statement. Please follow the instructions from your broker, bank or other nominee included with these proxy materials, or contact that organization to request a proxy form.

Revocability of Proxies and Changes to an Exterran Stockholder’s Vote

Any stockholder giving a proxy has the right to revoke it before the proxy is voted at the Exterran special meeting. If you are an Exterran stockholder of record, you may revoke your proxy by any of the following actions:

 

•

by voting again by internet or telephone as instructed on your proxy card before the commencement of the Exterran special meeting;

 

•

by delivering a signed written notice of revocation to Exterran’s Corporate Secretary, provided such statement is received no later than the commencement of the Exterran special meeting;

 

•

by submitting a properly signed and dated proxy card with a later date that is received by Exterran no later than the close of business on the date of commencement of the Exterran special meeting; or

 

•

by voting at the Exterran special meeting via the special meeting website.

Only your last submitted proxy card will be considered.

Execution or revocation of a proxy will not in any way affect a stockholder’s right to attend the Exterran special meeting and vote thereat.

 

- 92 -

Written notices of revocation and other communications with respect to the revocation of proxies should be addressed to:

Exterran Corporation

11000 Equity Drive

Houston, TX 77041

Attention: Corporate Secretary

If you own shares in “street name,” your broker, bank or other nominee should provide you with appropriate instructions for changing or revoking your voting instructions.

Tabulation of Votes

The Exterran board will appoint an independent inspector of elections for the Exterran special meeting. The inspector of elections will, among other matters, determine the number of shares of Exterran common stock represented at the Exterran special meeting to confirm the existence of a quorum, determine the validity of all proxies and ballots and certify the results of voting on all proposals submitted to Exterran stockholders at the Exterran special meeting.

Solicitation of Proxies; Expenses of Solicitation

Exterran is soliciting proxies to provide an opportunity to all Exterran stockholders to vote on agenda items at the Exterran special meeting, whether or not the stockholders are able to attend the Exterran special meeting or any adjournment or postponement thereof. Exterran will bear the entire cost of soliciting proxies from its stockholders. In addition to the solicitation of proxies by mail, Exterran will request that banks, brokers and other nominee record holders send proxies and proxy material to the beneficial owners of Exterran common stock and secure their voting instructions, if necessary. Exterran may be required to reimburse those banks, brokers and other nominees on request for their reasonable expenses in taking those actions.

Exterran has also retained Innisfree M&A Incorporated to assist in soliciting proxies and in communicating with Exterran stockholders and estimates that it will pay them a fee of approximately $20,000 plus reimbursement for certain out-of-pocket fees and expenses. Exterran also has agreed to indemnify Innisfree M&A Incorporated against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions). Proxies may be solicited on behalf of Exterran or by Exterran directors, officers and other employees in person, by mail, by telephone, by facsimile, by messenger, via the internet or by other means of communication, including electronic communication. Directors, officers and employees of Exterran will not be paid any additional amounts for their services or solicitation in this regard.

Householding

The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for companies. Exterran and some brokers “household” proxy materials, delivering a single proxy statement to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker or Exterran that they or Exterran will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement, or if you are receiving multiple copies of the proxy statement and wish to receive only one, you may direct such requests to our Transfer Agent at the following address: American Stock Transfer, Shareholder Services Department, 6201 15th Avenue, Brooklyn, New York, 11219, or you may call (800) 937-5449 or email info@ASTfinancial.com.

 

- 93 -

Assistance

If you need assistance voting or in completing your proxy card or have questions regarding the Exterran special meeting, please contact Innisfree M&A Incorporated, Exterran’s proxy solicitor for the Exterran special meeting:

INNISFREE M&A INCORPORATED

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders May Call:

Toll-Free at (888) 750-5834 (from the U.S. and Canada)

Or +1 (412) 232-3651 (from other locations)

Banks & Brokers May Call Collect: (212) 750-5833

EXTERRAN STOCKHOLDERS SHOULD CAREFULLY READ THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE MERGER AGREEMENT AND THE TRANSACTION. IN PARTICULAR, EXTERRAN STOCKHOLDERS ARE DIRECTED TO THE MERGER AGREEMENT, WHICH IS ATTACHED AS ANNEX A HERETO.

 

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THE EXTERRAN MERGER PROPOSAL

This section of this proxy statement/prospectus 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 proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus, including the full text of the Merger Agreement, a copy of which is attached to this proxy statement/prospectus as Annex A, for a more complete understanding of the transaction. In addition, important business and financial information about each of Exterran and Enerflex is included in or incorporated by reference into this proxy statement/prospectus. For a listing of the documents incorporated by reference into this proxy statement/prospectus, see the section entitled “Where You Can Find Additional Information” on page 370.

The approval by Exterran stockholders of the Exterran merger proposal is required by Section 251 of the DGCL and is a condition to the closing of the transaction.

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 proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal.

IF YOU ARE AN EXTERRAN STOCKHOLDER, THE EXTERRAN BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE EXTERRAN MERGER PROPOSAL (PROPOSAL 1).

Transaction Structure

The Merger Agreement provides, among other things, that, subject to the terms and conditions set forth therein of the Merger Agreement, at the effective time, merger sub will merge with and into Exterran with the separate corporate existence of merger sub ceasing and Exterran surviving as a direct wholly owned subsidiary of Enerflex (the merger). The terms and conditions of the transaction are contained in the Merger Agreement, which is described in this proxy statement/prospectus and attached to this proxy statement/prospectus as Annex A. 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 proxy statement/prospectus of the terms and conditions of the transaction are qualified in their entirety by reference to the full text of the Merger Agreement.

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.

Based on the number of shares of Exterran common stock and Exterran equity awards outstanding as of September 8, 2022, Enerflex expects to issue, or reserve for issuance up to approximately 34,018,055 Enerflex common shares to Exterran stockholders and holders of Exterran equity awards, upon conversion, at the effective time under the Merger Agreement. The actual number of Enerflex common shares to be issued or reserved for issuance under the Merger Agreement will be determined immediately prior to the effective time based on the exchange ratio, the number of shares of Exterran common stock and the number of Exterran equity awards outstanding at such time. Based on the number of shares of Exterran common stock and Exterran equity awards outstanding as of September 8, 2022, and the number of Enerflex common shares outstanding as of September 8, 2022, immediately after the effective time, former Exterran stockholders are expected to own approximately 27.5% of the issued and outstanding Enerflex common shares.

 

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Based on the closing price of Enerflex common shares of C$7.90 on the TSX on January 21, 2022, the last full trading day prior to the public announcement of the Merger Agreement, the implied value of the merger consideration to Exterran stockholders was approximately C$8.07 per share of Exterran common stock. The merger consideration provides a premium to Exterran stockholders of approximately 115%, based on closing share price of Enerflex common shares and Exterran common stock on January 21, 2022, the last full trading day before the public announcement of the Merger Agreement. The implied value of the merger consideration will fluctuate, however, 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 of the transaction could be greater than, less than or the same as the value of the merger consideration on the date of this proxy statement/prospectus or at the time of the Exterran special meeting. Accordingly, you are encouraged to obtain current share price quotations for Exterran common stock and Enerflex common shares before deciding how to vote with respect to the approval of the Merger Agreement. Exterran common stock trades on the NYSE under the symbol “EXTN” and Enerflex common shares trade on the TSX under the symbol “EFX.” The price of Enerflex common shares on the TSX is reported in Canadian dollars.

Background of the Transaction

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 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,

 

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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 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 Dominion Securities, Inc. (which we refer to as “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 LLP (which we refer to as “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 LLP 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,

 

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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.

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, Enerflex’s 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

 

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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. For additional information regarding use of prospective financial information, please see the section entitled “Certain Unaudited Prospective Financial Information” beginning on page 123. 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 Enerflex’s 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.

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 advised Mr. Way 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 United States. Messrs, Way and Goodyear promptly informed the other members of the Exterran board of the August Proposal.

 

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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.

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

 

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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.

 

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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.

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.

 

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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 herein 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 Company, LLC (which we refer to collectively herein as “Chai Trust”) and each director and officer of Exterran and their affiliates would sign, concurrently with the signing of the merger agreement for a potential transaction, a voting agreement in favor 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. For additional information regarding voting agreements, please see the section entitled “The Voting Agreements” beginning on page 183.

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

 

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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 herein 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, (1) termination fees for Exterran and Enerflex triggered, in each case, off the equity value of Exterran, (2) no financing covenants or financing termination fee, (3) greater flexibility for Enerflex with regard to regulatory and interim operating covenants, termination rights and conditions to closing and (4) the inclusion of one Exterran designee on the board of directors of the combined company.

 

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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.

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 (1) 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, (2) the lack of inclusion of financing covenants or a financing termination fee in the revised draft, (3) the parties’ respective obligations to obtain antitrust clearance for the potential transaction, (4) the scope of the mutual no-shop provisions, (5) Enerflex’s request for a transfer restriction agreement binding on Chai Trust, (6) the conditions under which the parties would be permitted to terminate the Merger Agreement, (7) the definition of material adverse effect in the Merger Agreement, (8) 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, (9) the proposed outside date for the transaction, and (10) 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 (1) Exterran’s request for the inclusion of customary financing representations, financing covenants and a financing termination fee, (2) 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, (3) 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, (4) the removal of a proposed transfer restriction agreement binding only Chai Trust, (5) 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

 

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business between signing and closing, and (6) 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 Delaware General Corporation Law (which we refer to as 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.

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, (1) 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, (2) 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), (3) the scope of the efforts standard regarding regulatory covenants, (4) employee benefits for continuing employees following the closing, (5) Enerflex’s proposal that the board of the combined company contain one Exterran designee, which designee would be selected by Enerflex, and Exterran’s continued request for additional representation and (6) 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.

 

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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 (1) 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, (2) 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 (3) 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 (1) a proposed financing termination fee of $30.0 million, (2) Enerflex’s agreement to provide substantially similar base wages, bonus opportunities and severance benefits to continuing employees following the closing until December 31, 2022 and (3) 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

 

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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.

On January 23, 2022, the Enerflex board met with Enerflex management and, for a portion of the meeting, a representative of RBC, to consider the proposed transaction and discuss the draft Merger Agreement under negotiation with Exterran. Through discussion, the Enerflex board confirmed its agreement with the proposed transaction and the proposed terms set forth in the draft Merger Agreement and approved the Merger Agreement in substantially the form presented to the board, subject to such amendments or variations thereto as approved by the persons authorized to sign the Merger Agreement for and on behalf of Enerflex.

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. For a detailed discussion of Wells Fargo Securities’ opinion, see the section entitled “Opinion of the Financial Advisor to Exterran — Opinion of Wells Fargo Securities, LLC” beginning on page 116. 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.

Following these discussions and the delivery of the presentations, and after careful review and discussion by the Exterran board, including consideration of the factors described below under the heading “Recommendation of the Exterran Board; Exterran’s Reasons for the Merger” beginning on page 108, the Exterran board unanimously determined that the Merger Agreement and the transactions contemplated thereby were advisable and in the best interests of Exterran and its stockholders, and approved the Merger Agreement and the transactions contemplated thereby.

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 and directors and officers of Enerflex 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 favor of the transaction at the special meeting of the shareholders of Exterran and the special meeting of the shareholders of Enerflex, each to be called to consider the transaction. The transaction was announced before the market opened.

Recommendation of the Exterran Board; Exterran’s Reasons for the Transaction

The Exterran board, with the advice and assistance of its financial and legal advisors, negotiated, evaluated, and, at a meeting held on January 23, 2022, unanimously approved the Merger Agreement, the merger and the other transactions contemplated thereby. The Exterran board unanimously recommends that Exterran stockholders vote “FOR” the adoption of the Merger Agreement and the transactions contemplated thereby.

In reaching the decisions to approve the Merger Agreement and the transactions contemplated thereby and to recommend that the Exterran stockholders vote to adopt the Merger Agreement, the Exterran board consulted

 

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extensively with its financial and legal advisors and Exterran management, and considered a number of potential strategic alternatives to the proposed merger. After such discussions and considering such alternatives, the Exterran board unanimously determined the proposed merger to be in the best interests of Exterran and the Exterran stockholders. The Exterran board’s decision to approve the merger and the Merger Agreement and to recommend to the Exterran stockholders that they vote “FOR” the adoption of the Merger Agreement and the transactions contemplated thereby was based on a number of factors. These factors included, without limitation, the following (which are not necessarily presented in order of relative importance):

Strategic Rationale; Stockholder Value

The Exterran board considered a number of factors pertaining to the strategic rationale for the merger and the value to be received by the Exterran stockholders pursuant to the merger, including but not limited to the following:

 

•

The current, historical and projected financial condition and results of operations of Exterran on a standalone basis, including the risk-adjusted probabilities associated with achieving Exterran’s long-term strategic plan as a standalone company amid greater industry volatility as compared to the opportunity afforded to the Exterran stockholders via the merger consideration.

 

•

The Exterran board’s analysis of other potential strategic alternatives for Exterran, including continuing on as an independent company, monetizing Exterran’s water business, and the potential to acquire, be acquired or combine with other third parties.

 

•

The oral opinion of Wells Fargo Securities, Exterran’s financial advisor, delivered to the Exterran board, which was confirmed by delivery of a written opinion, dated as of 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, as more fully described below under the section entitled “Opinion of the Financial Advisor to Exterran — Opinion of Wells Fargo Securities, LLC” beginning on page 116. The full text of Wells Fargo Securities’ written opinion to the Exterran board, dated January 23, 2022, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Wells Fargo Securities in preparing its opinion, is attached to this proxy statement/prospectus as Annex B and is incorporated by reference herein in its entirety.

 

•

The fact that Wells Fargo Securities and King & Spalding were involved throughout the negotiations and updated the Exterran board directly and regularly, which provided the Exterran board with perspectives on the negotiation in addition to those of management.

 

•

The Exterran board’s expectation that the combined company will have the ability to leverage the increased scale of the resulting entity to make additional investments in innovation and technology to address competition and disruption in the oilfield and energy services industries and enhance customer offerings on a global basis.

 

•

The fact that Enerflex obtained committed financing to refinance or repay Exterran’s existing indebtedness and pay other expenses in connection with the transaction.

 

•

The Exterran board’s belief that Enerflex’s earnings and prospects, and the synergies potentially available in the proposed merger, which are estimated to be up to at least $40.0 million of annual run-rate synergies within 12 to 18 months following the Closing, would create the opportunity for the combined company to have superior future earnings and prospects compared to Exterran’s earnings and prospects on a standalone basis.

 

•

The Exterran board’s belief that the pro forma profile of the combined company is expected to have sufficient liquidity and financial flexibility to execute on its strategy, and return capital to shareholders.

 

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•

The Exterran board’s belief that the combined company will generate significant free cash flow, allowing the return of cash to the combined investor base through dividends, share repurchases and similar actions.

 

•

The Exterran board’s belief that the merger will combine complementary product lines, global presence and technology, create a premier integrated global provider of energy infrastructure with the ability to serve customers through strong positions in key business lines and have a fully integrated product and services platform.

 

•

The Exterran board’s belief that the merger will result in operational improvements, including margin improvement, personnel reorganization, real estate, corporate costs, research and development optimization and other administrative and organizational efficiencies.

 

•

The fact that Exterran stockholders as of immediately prior to the completion of the merger are expected to own approximately twenty-seven and one half percent (27.5%) of the issued and outstanding shares of the combined company immediately following the completion of the merger, and will have the opportunity to share in the future growth and expected synergies of the combined company while retaining the flexibility of selling all or a portion of those shares.

 

•

The historical and current market prices of Exterran common stock and Enerflex common shares.

 

•

The value to be received by the Exterran stockholders in the merger, including the fact that, as of January 21, 2022, the transaction value represented a premium of 18% to Exterran’s enterprise value.

 

•

The fact that the value to be received by the Exterran stockholders in the merger represented a premium of approximately 115% to the closing market price of Exterran on January 21, 2022 based on Enerflex’s closing market price on the same day, up from a premium of approximately 45% to the closing market price of Exterran on August 31, 2021 based on Enerflex’s closing market price on the same day.

 

•

The recommendation of Exterran management in favor of the transaction.

Terms of the Merger Agreement

The Exterran board considered the terms and conditions of the Merger Agreement, including but not limited to the following:

 

•

The fact that the exchange ratio is fixed, which the Exterran board believes is consistent with market practice for transactions of this type and with the strategic purpose of the transaction, and which also allows for the Exterran stockholders to potentially benefit from any increase in the trading price of Enerflex common shares between the announcement and completion of the merger.

 

•

The customary nature of the representations, warranties and covenants of Exterran and Enerflex in the Merger Agreement.

 

•

The flexibility permitted under the interim operating covenants which restrict the conduct of Exterran’s business prior to closing of the merger, and the fact that Enerflex is subject to certain restrictions on the conduct of its business prior to the closing of the merger.

 

•

The Exterran board’s belief that the terms of the Merger Agreement, taken as a whole, increase the degree of certainty that the merger will be completed, including the fact that:

 

•

There are limited circumstances in which the Enerflex board may terminate the Merger Agreement or change its recommendation that its shareholders approve the issuance of Enerflex common shares in connection with the merger;

 

•

Enerflex is required to use reasonable best efforts to obtain regulatory approvals, including agreeing to divestitures and remedies, unless (1) such divestiture or remedy would, in the good

 

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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 (2) 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;

 

•

Enerflex has agreed to pay a termination fee of $20.0 million to Exterran less any amounts required to be withheld or deducted on account of taxes, 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 a superior proposal;

 

•

Enerflex has agreed to pay 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

 

•

The Merger Agreement contains no financing condition.

 

•

The corporate governance provisions of the Merger Agreement, including the provisions providing that the Enerflex board would include the representation of one Exterran designee, selected by Enerflex, and that Enerflex will take all actions necessary to cause the Exterran director to be renominated for election so that such director has the opportunity to remain on Enerflex’s board for at least one (1) year following the effective time.

 

•

The review of the Exterran board, with the assistance of Exterran’s advisors, of the terms and conditions of other recent comparable transactions, including the governance terms, premiums relative to share prices, consideration mix, credit ratings and leverage targets, and announced synergy targets, and its overall belief that the terms of the Merger Agreement were consistent with market practice and in the best interest of Exterran and the Exterran stockholders.

 

•

The fact that the Exterran board, subject to certain conditions and the potential payment of a termination fee of $10.0 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 merger in response to an intervening event, even if there is no competing or superior proposal, if the Exterran board determines that the failure to take such action would likely be inconsistent with its fiduciary duties.

 

•

The fact that the Exterran board has the right to terminate the Merger Agreement to enter into a definitive agreement related to a superior proposal, subject to giving Enerflex notice and an opportunity to propose changes to the Merger Agreement, and the payment of a termination fee of $10.0 million, less any amounts required to be withheld or deducted on account of taxes, in the event of actual termination. The fact that the Exterran board, after discussing this termination fee with its advisors, believed that such fee was consistent with market practice and would not preclude or deter a willing and financially capable third party, were one to exist, from making a superior proposal following the announcement of a transaction with Enerflex.

 

•

The expected qualification of the merger as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

 

•

Exterran’s ability to specifically enforce Enerflex’s obligations under the Merger Agreement, including Enerflex’s obligations to complete the merger.

 

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Risks and Potentially Negative Factors

In addition to the above factors, the Exterran board also identified and considered a number of uncertainties, risks and other potentially negative factors in its consideration of the merger and the Merger Agreement, including without limitation:

 

•

The risks and costs to Exterran if the merger is not completed, including the diversion of management attention, potential employee attrition and the potential effect on Exterran’s business and relations with customers, suppliers and vendors.

 

•

The transaction costs to be incurred in connection with the merger.

 

•

The restrictions on the conduct of Exterran’s business prior to completion of the merger, which could delay or prevent Exterran from undertaking material strategic opportunities that might arise pending completion of the merger to the detriment of the Exterran stockholders.

 

•

The risk of not realizing all of the anticipated strategic and other benefits between Exterran and Enerflex, including, without limitation, the challenges of combining the businesses, operations and workforces of Exterran and Enerflex, the risk that expected operating efficiencies and cost savings may not be realized or will cost more to achieve than anticipated, and the risk that agreed upon divestitures or remedies required by antitrust authorities may decrease the anticipated strategic and other benefits of the merger to the combined company.

 

•

The fact that the merger consideration is all share consideration at a fixed number of Enerflex common shares, which could result in the Exterran stockholders being adversely affected by a decrease in the trading price of Enerflex common shares after the date of execution of the Merger Agreement.

 

•

The fact that, under the DGCL, because the merger consideration is in the form of a stock for stock exchange, no appraisal rights are available to the Exterran stockholders with respect to the merger or the other transactions contemplated by the Merger Agreement.

 

•

The fact that the Exterran directors and executive officers may have interests in the merger that are different from, or in addition to, those of the Exterran stockholders generally, including certain interests arising from the employment and compensation arrangements of Exterran’s executive officers, and the manner in which they would be affected by the merger.

 

•

The risk factors of the type and nature described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” beginning on pages 54 and 84, respectively.

The Exterran board weighed these positive and negative factors, realizing that future results are uncertain, including any future results considered or expected in the factors noted above. In addition, many of the nonfinancial factors considered were highly subjective. As a result, in view of the number and variety of factors they considered, the Exterran board did not consider it practicable and did not attempt to quantify or otherwise assign relative weights to the specific factors it considered. Rather, the Exterran board made its determination based on the totality of the information it considered. Individually, each director may have given greater or lesser weight to a particular factor or consideration.

The Exterran board believed that, overall, the potential benefits of the merger to Exterran and the Exterran stockholders outweighed the risks mentioned above.

In considering the recommendation of the Exterran board, you should be aware that certain directors and executive officers of Exterran may have interests in the merger that are different from, or in addition to, interests of the Exterran stockholders generally and may create potential conflicts of interest. The Exterran board was aware of these interests and considered them when evaluating and negotiating the Merger Agreement, the merger, and the other transactions contemplated by the Merger Agreement, and in recommending to the Exterran stockholders that they vote in favor of the Exterran merger proposal. See the section entitled “Interests of Exterran’s Directors and Executive Officers in the Transaction” beginning on page 129.

 

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The foregoing discussion of the information and factors considered by the Exterran board is forward-looking in nature. This information should be read in light of the factors described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 84 of this joint proxy statement/prospectus.

Board of Directors and Management of Enerflex after the Transaction

Board of Directors

Under the Merger Agreement, Enerflex has agreed 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 date, until such director’s successor is elected and qualified or the earlier of such director’s death, resignation or removal; and so that the Enerflex board will consist of no more than twelve (12) directors following such appointment. Following the effective time, Enerflex will take all actions necessary to cause the Exterran director designated by Enerflex to be renominated for election so that such director has the opportunity to remain on Enerflex’s board for at least one (1) year following the effective time.

Management

Following the effective time, Enerflex will acquire control of Exterran, and the members of Enerflex’s executive management team following the effective time will remain the same unless communicated otherwise in due course.

Information about the current directors and senior management of Exterran can be found in the documents listed under the section entitled “Where You Can Find Additional Information” on page 370. Information about the current directors and senior management of Enerflex can be found under the section below entitled “Management of Enerflex.”

Enerflex’s Reasons for the Transaction

The Enerflex board, by resolutions unanimously adopted at a meeting duly called and held, has determined that the Merger Agreement and the transaction are in the best interests of Enerflex, recommends that the Enerflex shareholders vote to approve the Enerflex common share issuance in connection with the merger and has directed that the Merger Agreement and the consummation of the transaction be submitted to the Enerflex shareholders for their consideration.

In reaching the Enerflex recommendation, the Enerflex board considered and relied upon a number of factors, including, among others, 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 entity. The all-share combination, and the resulting entity upon completion, 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. The Enerflex board believes the strategic rationale for the transaction are as follows:

 

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Creates a premier integrated global provider of energy infrastructure:

 

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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.

 

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Accelerates Growth of Gross Margin from Recurring Segments:

 

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

 

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

 

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Offers Improved Operational Efficiencies:

 

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Expect to realize at least US$40 million of annual run-rate synergies within 12 to 18 months after closing through overhead savings and operating efficiencies.

 

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Accretive to Shareholders:

 

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Expected to approximately double Adjusted EBITDA and be over 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.

 

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Enhanced scale with pro forma 2023 Adjusted EBITDA of US$360 million to US$400 million, inclusive of synergies.

 

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

 

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After closing, Enerflex expects to maintain its quarterly dividend of C$0.025 per common share.

 

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Transaction Benefits From a Long-Term, Stable Capital Structure:

 

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

 

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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 US$700 million 3-year revolving credit facility and a US$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 of the transaction. The committed financing is sufficient to fully repay existing 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.

 

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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.

 

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Enerflex targets a bank-adjusted net debt to EBITDA ratio of 2.5x—3.0x within 12 to 18 months after closing.

 

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Following capital project commitments in 2022, the combined entity’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.

 

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Commitment to Sustainability:

 

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

 

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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

 

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