Item 1.01 Entry into a Material Definitive Agreement.
On January 24, 2022, Exterran Corporation, a Delaware corporation (the
"Exterran"), Enerflex Ltd., a Canadian corporation ("Enerflex"), and Enerflex US
Holdings Inc., a Delaware corporation and a direct wholly-owned subsidiary of
Enerflex ("Merger Sub"), entered into a definitive Agreement and Plan of Merger
(the "Merger Agreement").
Merger Agreement
Pursuant to the Merger Agreement, and subject to the terms and conditions
thereof, Merger Sub will merge with and into Exterran (the "Merger"), with
Exterran surviving the Merger as a direct and wholly-owned subsidiary of
Enerflex. Subject to the terms and conditions set forth in the Merger Agreement,
at the effective time of the Merger (the "Effective Time"), each share of common
stock of Exterran, par value $0.01 per share ("Exterran Common Stock") then
outstanding, other than certain excluded shares of Exterran Common Stock as
described in the Merger Agreement, will be converted automatically into the
right to receive 1.021 Enerflex common shares (the "Enerflex Common Shares" and
such consideration, the "Merger Consideration").
The Merger Agreement also provides that, as of the Effective Time, each share of
Exterran restricted stock and each Exterran restricted stock unit award
(collectively, "Exterran Equity Awards") will be converted into a corresponding
Enerflex award, with the number of shares subject to such award being equal to
the product of (a) the number of shares of Exterran Common Stock subject to such
award immediately prior to the Effective Time multiplied by (b) 1.021 (the
"Exchange Ratio"). With respect to any Exterran Equity Award that is subject to
performance targets where the performance period is incomplete (or that is
complete but for which performance is not determinable due to the unavailability
of the required data), the number of shares of Exterran Common Stock subject to
such Exterran Equity Award will be determined as if performance had been
achieved at 100% of the applicable target. Except as expressly set forth in the
Merger Agreement, all such Exterran Equity Awards that are converted into
Enerflex awards will be subject to the same terms and conditions (including
settlement terms) applicable to the corresponding Exterran Equity Award prior to
the Effective Time.
If the Merger is consummated, the Exterran Common Stock will be delisted from
the New York Stock Exchange and deregistered under the Securities Exchange Act
of 1934, as amended.
Each of Exterran, Enerflex and Merger Sub has made customary representations and
warranties and covenants in the Merger Agreement, including (a) covenants to use
their respective reasonable best efforts to effect the Merger, including
securing required regulatory and approval of Exterran's and Enerflex's
shareholders and (b) covenants to conduct their respective business in the
ordinary course consistent with past practice during the interim period between
the execution of the Merger Agreement and the Effective Time.
The obligations of the parties to consummate the Merger are subject to the
satisfaction or waiver of customary closing conditions set forth in the Merger
Agreement, including, among others, (a) the adoption of the Merger Agreement by
the Exterran stockholders, (b) the approval of the issuance of Enerflex Common
Shares as the Merger Consideration by the Enerflex shareholders, (c) the
expiration or termination of any waiting period applicable under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), as well as the receipt of certain antitrust approvals outside of the
United States, (d) the lack of any governmental authority restraining, enjoining
or otherwise prohibiting the Merger, (e) the Enerflex Common Shares having been
conditionally approved for listing on the NYSE or Nasdaq, as applicable, subject
to official notice of issuance, and the TSX, subject to customary listing
requirements and (f) the absence of a "Company Material Adverse Effect" or
"Parent Material Adverse Effect" (as defined in the Merger Agreement) with
respect to Exterran or Enerflex. While the Merger is not conditioned on Enerflex
or any other party obtaining debt financing, Enerflex has obtained debt
financing commitments pursuant to the Debt Commitment Letter (as defined in the
Merger Agreement) from the parties thereto for the purpose of financing the
transactions contemplated by the Merger and paying related fees and expenses.
The obligations of the financing sources under the Debt Commitment Letter are
subject to customary conditions.
The Merger Agreement provides that Exterran and Enerflex must each comply with
customary non-solicitation restrictions, including certain restrictions on
Exterran's ability to solicit Company Alternative Proposals (as defined in the
Merger Agreement) and Enerflex's ability to solicit Parent Alternative Proposals
(as defined in the Merger Agreement), to provide non-public information to third
parties and to engage in negotiations with third parties regarding Company
Alternative Proposals or Parent Alternative Proposals, as applicable. Subject to
certain customary "fiduciary out" exceptions, (a) Exterran's board of directors
is each required to recommend that the Exterran stockholders adopt the Merger
Agreement and to call a meeting of the Exterran stockholders to vote on a
proposal to adopt the Merger Agreement and (b) Enerflex's board of directors is
each required to recommend that the Enerflex shareholders approve the issuance
of Enerflex Common Shares as the Merger Consideration.
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Either Exterran or Enerflex may terminate the Merger Agreement prior to the
Effective Time in certain circumstances, including (a) by mutual agreement,
(b) by either party if the Merger is not completed by October 24, 2022 (which
date may be automatically extended (i) for an additional 30 days if required
regulatory approvals have not been obtained or (ii) for an additional period to
allow for the completion of an in-process Marketing Period (as further defined
and described in the Merger Agreement) (the "End Date"), (c) by either party if
a governmental authority of competent jurisdiction has issued a final
non-appealable governmental order or law permanently prohibiting the Merger, (d)
be either party, if Exterran stockholders fail to adopt the Merger Agreement or
the Enerflex shareholders fail to approve the issuance of Enerflex Common Shares
as Merger Consideration and (e) the other party breaches its representations,
warranties or covenants in the Merger Agreement or otherwise breaches its
obligations under the Merger Agreement such that the applicable condition to the
consummation of the Merger is not satisfied, subject in certain cases, to the
right of the breaching party to cure the breach and payment of termination fees
as described below.
Subject to the conditions and applicable termination fees as prescribed in the
Merger Agreement, Exterran may terminate the Merger Agreement if all conditions
to the Merger Agreement have been satisfied or waived and Enerflex and Merger
Sub fail to consummate the Closing due to the failure of all, or any portion of,
Enerflex's debt financing (or, if applicable, to be funded at closing, for any
reason. In addition, subject to the conditions and applicable termination fees
as prescribed in the Merger Agreement, (a) prior to obtaining approval of the
Exterran stockholders, (i) Exterran may terminate the Merger Agreement in order
to enter into a definitive agreement with a third party to effect a Company
Superior Proposal (as defined in the Merger Agreement), and (ii) Enerflex may
terminate the Merger Agreement in the event of a Company Change of
Recommendation (as defined in the Merger Agreement) with respect to the Merger
or a breach by Exterran of the non-solicitation provisions in the Merger
Agreement and (b) prior to obtaining approval of the Enerflex shareholders,
(i) Enerflex may terminate the Merger Agreement in order to enter into a
definitive agreement with a third party to effect a Parent Superior Proposal (as
defined in the Merger Agreement), and (ii) Exterran may terminate the Merger
Agreement in the event of a Parent Change of Recommendation (as defined in the
Merger Agreement) with respect to the Merger or a breach by Enerflex of the
non-solicitation provisions in the Merger Agreement.
The Merger Agreement provides that Enerflex is required to pay Exterran a
termination fee of $30,000,000 if Exterran terminates the Merger Agreement as a
result of the failure of the debt financing being available to Enerflex.
Additionally, Enerflex is required to pay Exterran a termination fee of
$20,000,000 if (a) prior to obtaining Enerflex shareholder approval, Enerflex
terminates the Merger Agreement to enter into a definitive agreement with a
third party to effect a Parent Superior Proposal; or (b) Exterran terminates the
Merger Agreement in the event of a Enerflex Change of Recommendation, as set
forth in, and subject to the conditions of, the Merger Agreement. Enerflex must
also pay Exterran a $20,000,000 termination fee if the Merger Agreement is
terminated in certain specified circumstances where a Parent Alternative
Proposal to the Merger has been made and not withdrawn at least two (2) business
days prior to the Enerflex shareholders' meeting and, within twelve (12) months
following such termination, Enerflex enters into a definitive agreement in
respect of an alternative transaction of the type described in the relevant
provisions of the Merger Agreement, or such transaction is consummated.
Additionally, Exterran is required to pay Enerflex a termination fee of
. . .
Item 8.01. Other Events.
Voting Agreement
On January 24, 2022, concurrently with the execution of the Merger Agreement,
Exterran entered into a Voting Agreement (the "Parent Voting Agreement") with
the directors and executive officers of Enerflex, pursuant to which such
shareholders agreed, among other matters, to vote their Enerflex shares and
other securities in favor of the issuance of Enerflex shares pursuant to the
Merger Agreement.
Also on January 24, 2022, concurrently with the execution of the Merger
Agreement, Enerflex entered into a Voting Agreement with all of the funds
managed by Chai Trust Company, LLC that own Exterran Common Stock and the
directors and executive officers of Exterran pursuant to which such stockholders
agreed, among other matters, to vote their shares of Exterran Common Stock in
favor of the adoption of the Merger Agreement.
The foregoing description of the Parent Voting Agreement does not purport to be
complete and is qualified in its entirety by reference to the full text of the
form of Parent Voting Agreement, a copy of which is attached hereto as Exhibit
10.1 and incorporated herein by reference.
Press Release
On January 24, 2022, Exterran issued a press release announcing entry into the
Merger Agreement. The press release is attached hereto as Exhibits 99.1 and is
incorporated by reference herein.
The information under Item 8.01 of this Current Report on Form 8-K (including
Exhibit 10.1 and Exhibit 99.1) shall not be deemed "filed" for purposes of
Section 18 of the Exchange Act or otherwise subject to the liabilities of that
section, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933, as amended, or the Exchange Act.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
No. Description
2.1 Agreement and Plan of Merger, dated as of January 24, 2022, by and
among Exterran, Enerflex and Merger Sub.
10.1 Parent Voting Agreement, dated as of January 24, 2022, by and among
Exterran and the shareholders party thereto.
99.1 Exterran Press Release issued January 24, 2022.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
Advisory Regarding Forward-Looking Information
This announcement contains forward-looking information within the meaning of
applicable Canadian securities laws and within the meaning of the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of 1995. These
statements relate to the respective management expectations about future events,
results of operations and the future performance (both operational and
financial) and business prospects of Enerflex Ltd., Exterran Corp., or the
combined entity. All statements other than statements of historical fact are
forward-looking statements. The use of any of the words "anticipate", "future",
"plan", "contemplate", "continue", "estimate", "expect", "intend", "propose",
"might", "may", "will", "shall", "project", "should", "could", "would",
"believe", "predict", "forecast", "pursue", "potential", "objective" and
"capable" and similar expressions are intended to identify forward-looking
information. In particular, this announcement includes (without limitation)
forward-looking information pertaining to: the expectation that the Merger will
strengthen Enerflex's ability to serve customers and enhance shareholder value;
the anticipated financial performance of the combined entity, including its
expected gross margin and the acceleration of its generation of recurring gross
margins; the expected run rate synergies and efficiencies to be achieved as a
result of the Merger and the quantum and timing associated therewith; the
listing of Enerflex shares on the NYSE or NASDAQ, as applicable, to be effective
upon Merger close; the listing of the Enerflex common shares being issued in
connection with the Merger on the TSX; anticipated shareholder value; expected
accretion to Adjusted EBITDA, cash flow per share, and earnings per share for
shareholders of Enerflex; excess free cash flow beginning in 2023; pro forma
geographic exposure and the expected revenues associated therewith; future
capital expenditures, including the amount and nature thereof; product bookings
and backlog; oil and gas prices and the impact of such prices on demand for the
combined entity's products and services; development trends in the oil and gas
industry; seasonal variations in the activity levels of certain oil and gas
markets; expectation in respect of excess free cash flow following closing of
the Merger; business prospects and strategy; expansion and growth of the
business and operations, including position in the energy service markets;
expectations regarding future dividends; the 3-year revolving credit facility
and 5-year bridge loan facility and the combined entity's related targets of
bank-adjusted net debt to EBITDA and the timing thereof; the bridge loan
facility providing financing to backstop an anticipated issuance of new debt
securities and the timing thereof; the committed financing being sufficient to
fully repay existing Enerflex and Exterran notes and revolving credit
facilities, provide for capital expenditures and other ordinary course capital
needs, and provide significant liquidity for the pro forma business; the
priorities of the combined entity in 2023 following capital commitments in 2022;
expectations and implications of changes in government regulation, laws and
income taxes; environmental, social, and governance matters; the combined
entity's ability to deliver sustainable solutions; the constitution of the Board
of Directors of the combined entity as at closing of the Merger; the receipt of
all necessary approvals including the approval of the Enerflex shareholders and
Exterran shareholders and the timing associated therewith; the disclosures
provided under the heading "Select Pro Forma Financial Information"; Exterran's
expectations regarding its fourth quarter 2021 results; and the successful
completion of the Merger and the anticipated closing date. This forward-looking
information is based on assumptions, estimates and analysis made by Exterran and
Enerflex and their perception of trends, current conditions and expected
developments, as well as other factors that are believed by Enerflex to be
reasonable and relevant in the circumstances and in light of the Merger.
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All forward-looking information in this announcement is subject to important
risks, uncertainties, and assumptions, which are difficult to predict and which
may affect Enerflex's or the combined company's operations, including, without
limitation: the satisfaction of closing conditions to the Merger in a timely
manner, if at all; receipt of all necessary regulatory and/or competition
approvals on terms acceptable to Enerflex and Exterran; the impact of economic
conditions including volatility in the price of oil, gas, and gas liquids,
interest rates and foreign exchange rates; industry conditions including supply
and demand fundamentals for oil and gas, and the related infrastructure
including new environmental, taxation and other laws and regulations; business
disruptions resulting from the ongoing COVID-19 pandemic; the ability to
continue to build and improve on proven manufacturing capabilities and innovate
into new product lines and markets; increased competition; insufficient funds to
support capital investments required to grow the business; the lack of
availability of qualified personnel or management; political unrest; and other
factors, many of which are beyond the control of Enerflex and Exterran. Readers
are cautioned that the foregoing list of assumptions and risk factors should not
be construed as exhaustive. While the parties believe that there is a reasonable
basis for the forward-looking information and statements included in this
announcement, as a result of such known and unknown risks, uncertainties and
other factors, actual results, performance, or achievements could differ and
such differences could be material from those expressed in, or implied by, these
statements. The forward-looking information included in this announcement should
not be unduly relied upon as a number of factors could cause actual results to
differ materially from the results discussed in these forward-looking
statements, including but not limited to: the completion and related timing for
completion of the Merger; the ability of Enerflex and Exterran to timely receive
any necessary regulatory, shareholder, stock exchange, lender, or other
third-party approvals to satisfy the closing conditions of the Merger;
interloper risk; the ability to complete the Merger on the terms contemplated by
Enerflex and Exterran or at all; the ability of the combined entity to realize
the anticipated benefits of, and synergies from, the Merger and the timing and
quantum thereof; consequences of not completing the Merger, including the
volatility of the share prices of Enerflex and Exterran, negative reactions from
the investment community and the required payment of certain costs related to
the Merger; actions taken by government entities or others seeking to prevent or
alter the terms of the Merger; potential undisclosed liabilities unidentified
during the due diligence process; the accuracy of the pro forma financial
information of the combined entity; the interpretation of the Merger by tax
authorities; the success of business integration and the time required to
successfully integrate; the focus of management's time and attention on the
Merger and other disruptions arising from the Merger; the ability to maintain
desirable financial ratios; the ability to access various sources of debt and
equity capital, generally, and on acceptable terms, if at all; the ability to
utilize tax losses in the future; the ability to maintain relationships with
partners and to successfully manage and operate integrated businesses; risks
associated with technology and equipment, including potential cyberattacks; the
occurrence of unexpected events such as pandemics, war, terrorist threats and
the instability resulting therefrom; risks associated with existing and
potential future lawsuits, shareholder proposals and regulatory actions; and
those factors referred to under the heading "Risk Factors" in Enerflex's Annual
Information Form and Exterran's Form 10-K, each for the year ended December 31,
2020, and in Enerflex's Management's Discussion and Analysis and Exterran's Form
10-Q, each for the three and nine months ended September 30, 2021, located on
SEDAR and EDGAR respectively. In addition, the effects and impacts of the
ongoing COVID-19 pandemic, the rapid decline in global energy prices and the
length of time to significantly reduce the global threat of COVID-19 on
Enerflex's, Exterran's, and the combined entity's respective businesses, the
global economy and markets are unknown and cannot be reasonably estimated at
this time and could cause actual results to differ materially from the
forward-looking statements contained in this announcement.
The forward-looking information contained herein is expressly qualified in its
entirety by the above cautionary statement. The forward-looking information
included in this announcement is made as of the date of this announcement and,
other than as required by law, Enerflex and Exterran disclaim any intention or
obligation to update or revise any forward-looking information, whether as a
result of new information, future events or otherwise. This announcement and its
contents should not be construed, under any circumstances, as investment, tax or
legal advice.
All figures in US dollars unless otherwise indicated.
No Offer or Solicitation
This announcement is for informational purposes only and is neither an offer to
purchase, nor a solicitation of an offer to sell, any securities or the
solicitation of any vote in any jurisdiction pursuant to the proposed
transactions or otherwise, nor shall there be any sale, issuance or transfer of
securities in any jurisdiction in contravention of applicable law. No offer of
securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.
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Additional Information and Where to Find It
In connection with the proposed Merger, Enerflex and Exterran will file relevant
materials with the Securities and Exchange Commission ("SEC"), including a
Registration Statement containing a proxy statement/prospectus on appropriate
form of registration statement regarding each of Enerflex and Exterran,
respectively, and an information circular regarding Exterran. After the
Registration Statement has become effective, the definitive proxy
statement/prospectus will be mailed to Exterran stockholders. After the
Registration Statement has become effective, the definitive proxy
statement/prospectus will be mailed to Exterran stockholders. The information
circular will be mailed to Enerflex shareholders. Both the definitive proxy
statement/prospectus will contain important information about the proposed
Merger and related matters. INVESTORS AND SHAREHOLDERS ARE URGED AND ADVISED TO
READ THE PROXY STATEMENT/PROSPECTUS AND INFORMATION CIRCULAR, AS APPLICABLE,
CAREFULLY WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE MERGER AND THE PARTIES TO THE MERGER. The definitive proxy
statement, the preliminary proxy statement, the information circular and other
relevant materials in connection with the Merger (when they become available)
and any other documents filed by Exterran with the SEC, may be obtained free of
charge at the SEC's website, at www.sec.gov and with SEDAR may be obtained free
of charge from the SEDAR website at www.sedar.com. The documents filed by
Enerflex with the SEC and SEDAR may also be obtained free of charge at
Enerflex's investor relations website at
https://www.enerflex.com/investors/index.php. Alternatively, these documents,
when available, can be obtained free of charge from Enerflex upon written
request to Enerflex Ltd., Attn: Investor Relations, Suite 904, 1331 Macleod
Trail SE, Calgary, Alberta, Canada T2G 0K3 or by calling +1.403.387.6377. The
documents filed by Exterran with the SEC may also be obtained free of charge at
Exterran's investor relations website at https://www.exterran.com/EXTN.
Alternatively, these documents, when available, can be obtained free of charge
from Exterran upon written request to investor.relations@exterran.com or by
calling +1.281.836.7000.
Participants in the Solicitation
Enerflex, Exterran and their respective directors and executive officers may be
deemed, under SEC rules, to be participants in the solicitation of proxies from
Exterran's shareholders in connection with the Merger. Information about
Exterran's directors and executive officers and their ownership of Exterran's
securities is set forth in Exterran's definitive proxy statement on Schedule 14A
filed with the SEC on March 17, 2021 and may also be obtained free of charge at
Enerflex's investor relations website at
https://www.enerflex.com/investors/index.php. Alternatively, these documents can
be obtained free of charge from Exterran upon written request to
investor.relations@exterran.com or by calling +1.281.836.7000. You may obtain
information about Enerflex's executive officers and directors in Enerflex's
Annual Information Form, which was filed with SEDAR on February 24, 2021. These
documents may be obtained free of charge from the SEDAR website at www.sedar.com
and may also be obtained free of charge at Enerflex's investor relations website
at https://www.enerflex.com/investors/index.php. Alternatively, these documents
can be obtained free of charge from Enerflex upon written request to Enerflex
Ltd., Attn: Investor Relations, Suite 904, 1331 Macleod Trail SE, Calgary,
Alberta, Canada T2G 0K3 or by calling +1.403.387.6377. Additional information
regarding the interests of all such Exterran directors and officers in the
proposed Merger will be included in the proxy statement relating to the Merger
when it is filed with the SEC.
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