Section 144 -- application for variation of cease trade order -- issuer cease traded due to failure to file with the Commission annual and interim financial statements -- issuer has applied for a variation of the cease trade order to permit the issuer to proceed with a restructuring transaction through asset sale and share acquisitions by arm's-length investor -- arm's-length investor is an accredited investor -- transaction subject to shareholder approval -- all parties to transaction will receive copy of cease trade order and partial revocation -- partial revocation granted subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 127, 144.
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
IN THE MATTER OF
ENQUEST ENERGY SERVICE CORP.
PARTIAL REVOCATION ORDER
WHEREAS the securities of EnQuest Energy Services Corp. ("EnQuest" or the "Applicant") are subject to a cease trade order issued by a Director of the Ontario Securities Commission (the "Commission") on May 25, 2010 (the "Cease Trade Order");
AND WHEREAS the Applicant has applied to the Commission pursuant to section 144 of the Act for a partial revocation of the Cease Trade Order to permit the Applicant to proceed with a proposed transaction to re-capitalize the Applicant for the purposes of filing the continuous disclosure materials referred to in the Order;
AND WHEREAS the Applicant has represented to the Commission that:
1. EnQuest is a corporation formed by amalgamation under the laws of the Province of Alberta. The registered office of the Applicant is located in Calgary, Alberta.
2. EnQuest is a reporting issuer in all provinces of Canada except Prince Edward Island, Nova Scotia and Québec.
3. EnQuest's authorized share structure consists of an unlimited number of Common Shares and an unlimited number of preferred shares, issuable in series, of which 16,575,163 Common Shares are issued and outstanding as fully paid and non-assessable.
4. EnQuest's common shares (the "Common Shares") are listed on the TSX Venture Exchange under the symbol "ENQ". However, trading in the Common Shares was halted on April 6, 2010 and remains suspended.
5. The Cease Trade Order was issued as a result of EnQuest's failure to file its annual audited financial statements (the "Financial Statements"), management discussion and analysis, and certification of annual or interim filings for the fiscal year ended December 31, 2009, and subsequent interim continuous disclosure documents, within the required time period by securities legislation (collectively, the "Continuous Disclosure Documents").
6. The delay in filing the Continuous Disclosure Documents arose as a consequence of financial hardship and of actions taken by the Applicant's principal lender, following which the Applicant was unable to pay the fees of various service providers, including its auditors (the "Auditors").
7. The Applicant is also subject to a cease trade order issued by the British Columbia Securities Commission ("BCSC") dated May 11, 2010, the Manitoba Securities Commission ("MSC") dated June 18, 2010 and the Alberta Securities Commission ("ASC") dated May 7, 2010, for failure to file its Continuous Disclosure Documents.
8. The Applicant is concurrently applying to the ASC, the MSC and BCSC for a partial revocation of the cease trade orders issued in each such jurisdiction.
9. EnQuest has entered into agreements with TransForce Inc. ("TransForce") and certain of its subsidiaries in order to effect a transaction (the "Transaction"). The Transaction consists of the sale of substantially all of the assets owned by certain wholly-owned subsidiaries of EnQuest (the "Assets") to Hemphill Trucking, Inc., a wholly-owned subsidiary of TransForce (the "Asset Sale") and the concurrent acquisition by TransForce of 19% of the Common Shares, with an option granted to TransForce to acquire the remaining 81% of the Common Shares at any time during the subsequent three year period (the "Share Acquisition").
10. The Asset Sale will be completed pursuant to: (i) an asset purchase agreement dated June 1, 2010 among Speedy Heavy Hauling, Inc., Summit Crane & Rigging, Inc., Northern Truck & Crane, Inc. and Tubular Transportation Inc., all being wholly-owned subsidiaries of the EnQuest, as sellers, and Hemphill Trucking, Inc., being a wholly-owned subsidiary of TransForce, as buyer, for a purchase price of USD$29,744,500, subject to certain adjustments; and (ii) a real property purchase agreement between Speedy Heavy Hauling, Inc., as seller, and Hemphill Trucking Inc., as buyer, for a purchase price of USD$2,255,500. The total purchase price for the Asset Sale is USD$32,000,000.
11. The Transaction was negotiated at arm's length between EnQuest and TransForce.
12. In connection with the Asset Sale, various creditors of EnQuest have agreed to take less than one hundred percent of the value owed to such creditors. In the absence of such agreements, the assets of EnQuest would not be sufficient to meet its obligations to creditors and other liabilities, and actions taken by EnQuest's creditors could force a cessation of operations of EnQuest, and a complete loss of shareholder value. The Share Acquisition provides EnQuest Shareholders with a cash payment for Common Shares that would otherwise have little or no value.
13. EnQuest and TransForce have also agreed to provide TransForce with an equity position in EnQuest and to concurrently proceed with the acquisition, by TransForce or a subsidiary of TransForce, of 19% of the Common Shares for cash consideration of $0.16 per Common Share, with an option granted to TransForce to acquire the remaining 81% of the Common Shares for cash consideration of $0.01 per Common Share. All EnQuest Shareholders receive identical consideration under the Share Acquisition for each Common Share held by such EnQuest Shareholder. The Asset Sale and the Share Acquisition have been negotiated as part of the same Transaction and the completion of one is conditional upon the completion of the other.
14. The proceeds of the Asset Sale will be used by EnQuest to pay its creditors, including its principal lender, in an amount less than that which is currently owed to such creditors, and also to pay: (i) legal and other advisors fees incurred to date including the Auditors' fees; (ii) fees and expenses including late filing fees for the filing of the Continuous Disclosure Documents; (iii) anticipated fees and expenses related to the application for a full revocation of the Cease Trade Order; (iv) current accounts payable; and (v) general corporate overhead.
15. The Transaction is conditional on the EnQuest Shareholders approving each of the Asset Sale and the Share Acquisition and the holders of options to purchase Common Shares ("EnQuest Optionholders") approving the Share Acquisitions, in each case, by not less than two-thirds (66 2/3%) of the votes cast by EnQuest Shareholders and, in the case of the Share Acquisitions, approval of the Alberta Court of Queens' Bench (the "Court"). In the event that the EnQuest Shareholders and EnQuest Optionholders do not provide the required approval of the Transaction or other closing conditions are not satisfied, the Transaction will not proceed and EnQuest will pursue alternative strategies to address its financial difficulties, including bankruptcy and or insolvency proceedings.
16. The Transaction is in the best interests of the EnQuest Shareholders because it provides them with a cash payment for the Common Shares that would otherwise have no intrinsic value. Because the liabilities of EnQuest exceed its assets, the Common Shares presently have no intrinsic value. The preparation of the Financial Statements would provide no incremental benefit to Shareholders because they would only serve to reconfirm this fact, while at the same time, imposing additional costs and Transaction non-completion risk on EnQuest and the EnQuest Shareholders.
17. No payments made to management of EnQuest will constitute a "collateral benefit" as that term is defined in Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions.
18. Pursuant to the Transaction, a "trade" (as such term is defined in the Securities Act (Alberta) would occur in Alberta and in all other jurisdictions in which present EnQuest Shareholders reside. All such trades shall be exempt from the requirement to file a prospectus by virtue of the Transaction being an "arrangement that is under a statutory procedure" pursuant to section 2.11 of National Instrument 45-106 Prospectus and Registration Exemptions.
19. On completion of the Transaction, EnQuest intends to apply to the ASC, BCSC, MSC and OSC for a full revocation order and reasonably anticipates having sufficient resources to bring its continuous disclosure record and fees up to date.
20. The Transaction involves a trade of securities and therefore cannot be concluded without obtaining a partial revocation of the Cease Trade Order.
21. Prior to completion of the Transaction, EnQuest will provide to all parties to the Transaction:
(a) a copy of the Cease Trade Order as an attachment to the information circular mailed in connection with the Transaction (the "Circular");
(b) a copy of the Partial Revocation Order, as an attachment to the Circular (if granted prior to the mailing of the Circular), or otherwise to be filed on SEDAR; and
(c) written notice advising that all securities of EnQuest will remain subject to the Cease Trade Order until such time as each of the ASC, the BCSC, the MSC and the OSC issues a full revocation order.
22. EnQuest will obtain and provide to the ASC, BCSC, MSC and OSC a signed and dated acknowledgment as part of the Letter of Transmittal mailed to, and executed by, EnQuest Shareholders from all participants in the Transaction stating that the issuance of the Partial Revocation does not guarantee the issuance of a full revocation order in the future.
23. If obtained, EnQuest will provide to the ASC, BCSC, MSC and OSC the final order of the Court approving the Transaction.
AND WHEREAS considering the application and the recommendation of the staff of the Commission;
AND WHEREAS the Commission is satisfied that it would not be prejudicial to the public interest to grant the partial revocation of the Cease Trade Order;
IT IS ORDERED, pursuant to section 144 of the Act, that the Cease Trade Order is partially revoked solely to permit trades in securities of the Applicant in connection with the Transaction, provided that:
(a) Prior to completion of the Transaction, EnQuest will provide to all parties to the Transaction:
(i) a copy of the Cease Trade Order as an attachment to Circular;
(ii) a copy of the Partial Revocation Order, as an attachment to the Circular (if granted prior to the mailing of the Circular), or otherwise to be filed on SEDAR; and
(iii) written notice advising that all securities of EnQuest will remain subject to the Cease Trade Order until such time as each of the ASC, the BCSC, the MSC and the OSC issues a full revocation order;
(b) EnQuest will obtain and provide to the ASC, BCSC, MSC and OSC a signed and dated acknowledgment as part of the Letter of Transmittal mailed to, and executed by, EnQuest Shareholders from all participants in the Transaction stating that the issuance of the Partial Revocation does not guarantee the issuance of a full revocation order in the future; and
(c) If obtained, EnQuest will provide to the ASC, BCSC, MSC and OSC the final order of the Court approving the Transaction.
DATED at Toronto this 10th day of August, 2010.