Mutual Reliance Review System for ExemptiveRelief Applications - Rule 54-501 - Relief granted from therequirement to reconcile to Canadian GAAP certain financialstatements included in an information circular that were preparedin accordance with U.S. GAAP.
Applicable Ontario Rules
Rule 54-501 Prospectus Disclosure in CertainInformation Circulars (2000), 23 OSCB 8519, section 3.1.
Rule 41-501 General Prospectus Requirements (2000), 23 OSCB761, sections 9.1, 9.4; Form 41-501F1 section 8.4 and subsection8.5(2).
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA,
SASKATCHEWAN, ONTARIO, QUÉBEC, AND
NEWFOUNDLAND AND LABRADOR
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
ENSERCO ENERGY SERVICE COMPANY INC.
IN THE MATTER OF
NABORS INDUSTRIES, INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof the Provinces of British Columbia, Alberta, Saskatchewan,Ontario, Québec, and Newfoundland and Labrador (the "Jurisdictions")has received an application from Enserco Energy Service CompanyInc. (the "Applicant or Enserco") for a decision ("theDecision") under the securities legislation of the Jurisdictions(the "Legislation") that the Applicant be exempt fromthe following requirements with respect to Nabors Industries,Inc. ("Nabors") in the management information circular(the "Circular") to be sent to Enserco's Securityholders(as defined below):
a) the requirement that historical financialstatements of Nabors prepared in accordance with United Statesgenerally accepted accounting principles ("U.S. GAAP")be accompanied by a note to explain and quantify the effectof material differences between Canadian generally acceptedaccounting principles ("Canadian GAAP") and U.S. GAAPthat relate to measurements and provide a reconciliation ofsuch financial statements to Canadian GAAP;
b) the requirement that Nabors auditor's reportdisclose any material differences in the form and content ofits auditor's report as compared to a Canadian auditor's reportand confirming that the auditing standards applied are substantiallyequivalent to Canadian GAAP; and
c) the requirement that Nabors management'sdiscussion and analysis of operating results and financial position("Nabors MD&A") provide a restatement of thoseparts of the Nabors MD&A that would read differently ifthe Nabors MD&A were based on statements prepared in accordancewith Canadian GAAP and the requirement that the Nabors MD&Aprovide a cross-reference to the notes in the financial statementsthat reconcile the differences between U.S. GAAP and CanadianGAAP
(collectively, the "GAAP ReconciliationRequirements").
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Alberta Securities Commission is the principal regulatorfor this application;
AND WHEREAS the Applicant has representedto the Decision Makers that:
1. In connection with the proposed combinationof Nabors and Enserco (the "Transaction") pursuantto an acquisition agreement (the "Acquisition Agreement")dated February 25, 2002 between Nabors and Enserco, Ensercointends to mail the Circular to Enserco Securityholders (asdefined below) on or about March 25, 2002, which Circular willseek, among other things, Enserco Securityholder approval ofthe plan of arrangement under section 192 of the Canada BusinessCorporations Act involving Nabors and Enserco (the "Arrangement").Subject to satisfying all closing conditions (including obtainingthe requisite Enserco Securityholders' approval and regulatoryapprovals), the parties anticipate that the Transaction willbe completed on or about April 24, 2002 (the "Closing Date").;
2. The Transaction is to be effected pursuantto the Arrangement, which will be carried out under section192 of the CBCA. The effect of the Arrangement will be to provideholders (the "Enserco Shareholders") of common sharesof Enersco ("Enserco Common Shares") (other then EnsercoCommon Shares held by dissenting shareholders (the "DissentingShareholders") or by Nabors) with cash or exchangeableshares (the "Exchangeable Shares") of a newly formedCanadian subsidiary corporation of Nabors to be incorporatedprior to the Closing Date ("Exchangeco"), in exchangefor their Enserco Common Shares. The exchange of Enserco CommonShares for Exchangeable Shares will be based on an exchangeratio (the "Exchange Ratio") determined based on the10 day weighted average trading price of Nabors Common Sharesduring the trading period ending three business days prior tothe closing of the Transaction and a predetermined currencyexchange ratio. The Enserco Common Shares will be transferredto and acquired by Exchangeco, which upon formation will bean indirect wholly-owned subsidiary of Nabors, such that uponcompletion of the Transaction, Nabors will own indirectly allof the Enserco Common Shares;
3. Nabors is incorporated under the laws ofthe state of Delaware. Nabors corporate headquarters are locatedat 515 West Greens Road, Suite 1200, Houston, Texas, 77067;
4. As of February 25, 2002, Nabors' authorizedcapital consisted of: i) 400,000,000 shares of common stock("Nabors Common Shares"), par value U.S.$0.10 pershare, ii) 10,000,000 shares of preferred stock, par value $0.10per share, issuable in series ("Nabors Preferred Shares"),and iii) 8,000,000 shares of class B stock, par value $0.10per share ("Nabors Class B Shares"). The Nabors CommonShares are fully participating voting shares. As of February22, 2002, there were 140,958,467 Nabors Common Shares, nil NaborsPreferred Shares and nil Nabors Class B Shares issued and outstanding.As of February 22, 2002, out of a total of 2447 total registeredholders of Nabors Common Shares, 9 holders were resident inCanada holding 1,744 Nabors Common Shares in aggregate, representingapproximately 0.0017% of the total number of issued and outstandingNabors Common Shares;
5. As of February 22, 2002, there were 45,258,089Nabors Common Shares reserved for issuance pursuant to Naborsstock option plans;
6. The Nabors Common Shares are listed on theAmerican Stock Exchange (the "AMEX") under the symbol"NBR";
7. Nabors is currently subject to the UnitedStates Securities Exchange Act of 1934, as amended (the "ExchangeAct"). Nabors is not and does not intend to become a "reportingissuer" or the equivalent in any province or territoryof Canada. To the extent that, as a result of the consummationof the Transaction, Nabors would, pursuant to the securitieslaws of any jurisdiction in Canada, be deemed to be a reportingissuer or the equivalent, Nabors will seek and expects to obtainorders deeming it not be to be a reporting issuer or the equivalentin such jurisdictions
8. Enserco was formed on November 17, 1988 pursuantto the amalgamation of Bonus Petroleum Corp. and Bonus ResourcesLtd. The company changed its name to Bonus Resource ServicesCorp. on June 6, 1996 and changed its name to Enserco EnergyService Company Inc. on May 3, 2001;
9. Enserco's authorized capital consists ofan unlimited number of Enserco Common Shares. As of February25, 2002, 26,179,861 Enserco Common Shares were issued and outstanding;
10. As of February 25, 2002, there were 55 registeredEnserco Shareholders in Canada holding 19,293,907 Enserco CommonShares, representing approximately 74% of the total number ofissued and outstanding Enserco Common Shares;
11. As of February 25, 2002, 821,130 optionswere outstanding under the Enserco stock option plan and otheroption agreements ("Enserco Options"), all of whichEnserco Options were held by residents in Canada, except for31,250 options. As of February 25, 2002, 500,000 warrants ("EnsercoWarrants") exercisable to acquire Enserco Commons Sharesat an exercise price of $9.50 per Enserco Common Share wereoutstanding and held by United States persons;
12. The Enserco Common Shares are listed onthe Toronto Stock Exchange (the "TSE") under the symbol"ERC";
13. Enserco is a "reporting issuer"or the equivalent in British Columbia, Alberta, Saskatchewan,Manitoba, Ontario and Quebéc;
14. Enserco is currently eligible to file underNational Instrument 44-101 - "Short Form Prospectus Distributions";
15. Prior to the Special Meeting (as definedbelow), Enserco will apply under section 192 of the CBCA foran interim order (the "Interim Order") of the Courtof Queen's Bench of Alberta (the "Court") which orderwill specify, among other things, certain procedures and requirementsto be followed in connection with the calling and holding ofthe Special Meeting and the completion of the Arrangement;
16. A special meeting (the "Special Meeting")of the Enserco Shareholders, holders of Enserco Options ("EnsercoOptionholders") and the holders of Enserco Warrants (togetherwith Enserco Shareholders and Enserco Optionholders, the "EnsercoSecurityholders") is anticipated to be held on or aboutApril 24, 2002 at which Enserco will seek the requisite EnsercoSecurityholder approval (which, pursuant to the Interim Order,is expected to be 66 2/3% of the votes attached to the EnsercoCommon Shares, Enserco Options and Enserco Warrants, votingas one class, represented at the Special Meeting) for the specialresolution approving the Arrangement;
17. In connection with the Special Meeting andpursuant to the Interim Order, Enserco will mail on or aboutMarch 25, 2002 to each Enserco Securityholder (i) a notice ofspecial meeting, (ii) a form of proxy, and (iii) the Circular.While a final determination on the issue has not presently beenmade by Enersco, if not included in the mailout of the Circularand other materials, Enserco will subsequently mail to eachEnserco Shareholder a letter of transmittal and election formby which Enserco Shareholders will be entitled to elect theconsideration to be received in exchange for their Enserco CommonShares. The Circular will be prepared in accordance with OSCRule 54-501, except with respect to any relief granted therefrom,and will contain disclosure of the Transaction and the businessand affairs of each of Nabors and Enserco;
18. The Circular will contain the followingfinancial statements:
(a) audited annual financial statements of Naborsfor each of the three fiscal years ended December 31, 1999,December 31, 2000 and December 31, 2001, together with balancesheets as at the end of such periods and the auditor's reportsthereon, all in accordance with U.S. GAAP; and
(b) audited annual financial statements of Ensercofor the fiscal year ended December 31, 2001, together with balancesheet as at the end of such period and the auditor's reportthereon, all in accordance with Canadian GAAP.;
19. Following approval by the Enserco Securityholdersof the special resolution approving the Arrangement, receiptof all required consents and regulatory approvals and issuanceby the Court of a favourable final order, and subject to thesatisfaction of all other closing conditions specified in theAcquisition Agreement, Enserco will effect the Arrangement byfiling Articles of Arrangement;
20. It is expected that upon consummation ofthe Arrangement or shortly thereafter the Enserco Common Shareswill be delisted from the TSE;
21. Nabors is making an application to the AMEXin order that the Nabors Common Shares issued pursuant to theArrangement, and the Nabors Common Shares issuable on exerciseof the Replacement Warrants, be listed for trading on the AMEX.Nabors is also making an application to the TSE in order thatthe Exchangeable Shares be listed for trading on the TSE;
22. Upon completion of the Arrangement, assumingthat all the Enserco Shareholders elect to exchange their EnsercoCommon Shares for Nabors Common Shares issuable pursuant tothe Arrangement, and assuming an Exchange Ratio of 0.2673 (basedon the relative prices of Enserco Common Shares and Nabors CommonShares on February 25, 2002, and based on the Bank of Canadanoon exchange rate for U.S. dollars on that date of 1.6016),it is expected that beneficial holders of Nabors Common Sharesresident in Canada (calculated based upon the number of registeredEnserco Shareholders and registered holders of Nabors CommonShares who are resident Canadians as of the above-mentioneddates) will hold Exchangeable Shares or Nabors Common Sharesrepresenting approximately 4.7% of the issued and outstandingNabors Common Shares (including Nabors Common Shares issuableon conversion of the Exchangeable Shares);
23. If Nabors becomes a reporting issuer inany of the Jurisdictions, it will be able to satisfy its continuousdisclosure obligations using financial statements prepared inaccordance with U.S. GAAP by relying on Part 15 of NationalInstrument 71-101 - The Multijurisdictional Disclosure System.
AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker;
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers under the Legislationis that the GAAP Reconciliation Requirements shall not applyin connection with the disclosure pertaining to Nabors in theCircular.
March 15, 2002.