Securities Law & Instruments

Headnote

NP 11-203 -- MI 61-101 -- take-over bid and subsequent business combination -- MI 61-101 requires sending of information circular and holding of meeting in connection with second step business combination -- target's deed of trust provides that a resolution in writing executed by unitholders holding a proportion of units equal to or greater than the proportion of units required to vote in favour thereof at a meeting of unitholders to approve such resolution is valid as if such voting rights had been exercised at a meeting of unitholders -- relief granted from requirement that information circular be sent and meeting be held -- minority approval to be obtained albeit in writing rather than at a meeting of unitholders.

December 3, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

THE TAKE-OVER BID FOR

ENERFLEX SYSTEMS INCOME FUND

BY TOROMONT INDUSTRIES LTD.

(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application (the Application) from the Filer in connection with a take-over bid for Enerflex Systems Income Fund (Enerflex) and Enerflex Holdings Limited Partnership (Enerflex LP) for a decision under the securities legislation of the Jurisdiction (the Legislation) that the following requirements of Section 4.2 of Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions (MI 61-101) be waived (the MI 61-101 Exemption Sought):

(a) a Compulsory Acquisition or Subsequent Acquisition Transaction (each, as defined below), as applicable, be approved at a meeting of the holders of units and special voting units of Enerflex (the Voting Unitholders); and

(b) an information circular be sent to the Voting Unitholders in connection with either a Compulsory Acquisition or Subsequent Acquisition Transaction, as applicable.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in Québec.

Interpretation

Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation existing under the Canada Business Corporations Act. The Filer is a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia and Prince Edward Island. The registered office of the Filer is P.O. Box 5511, 3131 Highway 7 West, Concord, Ontario L4K 1B7. The Filer is not in default of any requirement of securities legislation applicable to it.

2. Enerflex is an unincorporated open-ended mutual fund trust formed under the laws of the Province of Alberta pursuant to a deed of trust (the Deed of Trust) dated August 22, 2006. Enerflex's head office is located at 4700-47th Street SE, Calgary, Alberta T2B 3R1. Enerflex is a reporting issuer in each of the provinces and territories of Canada. Enerflex is authorized to issue:

(a) an unlimited number of trust units (the Trust Units), which are listed on the Toronto Stock Exchange under the trading symbol "EFX.UN"; and

(b) an unlimited number of special voting units (the Special Voting Units and, together with the Trust Units, the Voting Units). Special Voting Units may only be issued to holders of securities that are exchangeable for Trust Units (Exchangeable Securities), including Exchangeable LP Units (defined below), for the purpose of providing voting rights with respect to Enerflex to the holders of such securities. Special Voting Units are attached to the Exchangeable Securities to which they relate and are not transferable separately from such Exchangeable Securities.

3. As at November 1, 2009, there were issued and outstanding 44,281,622 Trust Units and one Special Voting Unit. The Special Voting Unit is held by Computershare Trust Company of Canada (Computershare) on behalf of each holder of Exchangeable LP Units (as defined below). As at the date hereof, the Filer, together with its affiliates, owns 3,902,100 Trust Units, representing approximately 8.8% of the outstanding Trust Units.

4. Enerflex LP, an indirect subsidiary of Enerflex, is a limited partnership formed under the laws of the Province of Alberta pursuant to a limited partnership agreement dated August 23, 2006. Enerflex LP's head office is located at 4700-47th Street SE, Calgary, Alberta T2B 3R1. Enerflex LP is a reporting issuer in British Columbia, Alberta, Saskatchewan, Quebec and Nova Scotia. Enerflex LP is authorized to issue:

(a) an unlimited number of Class A limited partnership units, all of which are held indirectly by Enerflex; and

(b) an unlimited number of Class B limited partnership units (the Exchangeable LP Units and, together with the Trust Units, the Units). The Exchangeable LP Units are exchangeable for Trust Units on a one-to-one basis and are non-transferable, except in certain limited circumstances. As at November 1, 2009, there were issued and outstanding 2,663,422 Exchangeable LP Units.

5. Enerflex has adopted a unitholder rights plan (the Rights Plan), which was ratified, approved and confirmed by the Voting Unitholders on April 7, 2009.

6. On November 16, 2009, the Filer commenced a take-over bid (the Offer) to acquire all of the issued and outstanding Trust Units together with any associated rights under the Rights Plan (the URP Rights) and all of the issued and outstanding Exchangeable LP Units together with any associated rights or other securities that have been, or may be, issued to provide holders of Exchangeable LP Units with the economic equivalent of URP Rights (ELP Rights), other than any Units owned directly or indirectly by the Filer or its affiliates, including all Units issued after the date of the Offer but before the Expiry Time (defined below) upon the exercise, exchange or conversion of any options or other securities of Enerflex, Enerflex LP or their respective affiliates, other than URP Rights and any ELP Rights, that are exercisable or exchangeable for or convertible into Units (Convertible Securities), on the basis of, at the election of each holder of a Unit: (a) $13.50 cash; or (b) $0.05 cash plus 0.5098 common shares of the Filer (Filer Shares), subject, in each case, to pro ration.

7. Based on the estimated number of Trust Units outstanding on a fully diluted basis as of September 30, 2009, the maximum number of Filer Shares issuable in connection with the Offer is 11,269,832 and the maximum amount of cash available under the Offer is $299,541,429.

8. The Offer is scheduled to expire at 8:00 p.m. on January 7, 2010 (the Expiry Time), subject to extension in accordance with the terms of the Offer.

9. The the Offer is conditional upon, among other things, there having been validly deposited under the Offer and not withdrawn at the expiry of the Offer: (i) such number of Trust Units which constitutes, together with the Trust Units owned by the Filer and its affiliates, at least 66 2/3% of the outstanding Trust Units (on a fully-diluted basis); and (ii) at least a majority of the Trust Units (on a fully-diluted basis) the votes attached to which would be included in the minority approval of a second step business combination under MI 61-101.

10. If the conditions to the Offer are satisfied (or waived by the Filer) and the Filer takes up and pays for Units deposited under the Offer, the Filer currently intends to: (i) acquire all of the Trust Units that are held by non-tendering holders of Trust Units on the terms on which the Filer acquired the Trust Units of holders of Trust Units that accepted the Offer; and (ii) require the exchange of Exchangeable Securities to Trust Units and acquire all of the Trust Units issued as a result of such exchange on the same terms as the Trust Units acquired pursuant to (i) above ((i) and (ii), collectively, a Compulsory Acquisition) as permitted by Section 12.11 of the Deed of Trust if, within 120 days after the date the Offer is made, the Offer is accepted by holders of not less than 90% of the Trust Units (including Trust Units issuable upon the conversion, exchange or exercise of all Exchangeable Securities, unless the conversion, exchange or exercise of such securities for the purpose of depositing under the Offer the Trust Units issuable upon such conversion, exchange or exercise is expressly prohibited by the terms and conditions of the securities).

11. If the conditions to the Offer are satisfied (or waived by the Filer), the Filer takes up and pays for Units deposited under the Offer and the right of Compulsory Acquisition is not available to the Filer or the Filer chooses not to avail itself of such right, the Filer currently intends to acquire or cause the exchange or redemption of all Units not acquired under the Offer, including all Units issued upon the conversion, exchange or exercise of Convertible Securities, (a Subsequent Acquisition Transaction) by, among other means, approving the following special resolutions of Voting Unitholders:

(a) removing each director of Enerflex Holdings General Partner Ltd. (Enerflex GP), the general partner of Enerflex LP, and appointing as directors of Enerflex GP nominees of the Filer;

(b) amending the Deed of Trust to permit a person to acquire all of the Trust Units not deposited under the Offer and any Trust Units that become outstanding upon the exercise, exchange or conversion of Exchangeable LP Units or Convertible Securities if that person (a Qualified Unitholder) (A) has made a an offer to acquire all of the Units for consideration that includes shares of the Qualified Unitholder and that permits holders of Units that deposit such Units to the offer to dispose of such Units on a tax-deferred rollover basis for purposes of the Income Tax Act (Canada), if such holders are eligible to do so (a Qualifying Offer), and (B) within 120 days after the date of the Qualifying Offer, such person shall have acquired under such Qualifying Offer such number of Trust Units which constitutes not less than a majority of the Trust Units, upon notice in writing provided by the Qualified Unitholder and upon transfer to the depositary identified in such notice the consideration per Trust Unit that is to be paid to the holders of Trust Units that did not deposit their Trust Units under the Qualified Offer, including persons who acquired Trust Units upon the exercise, exchange or conversion of Exchangeable LP Units or Convertible Securities, either before or after the expiry of the Qualified Offer;

(c) amending the Deed of Trust to provide that any Trust Units not deposited under the Offer and any Trust Units that become outstanding upon the exercise, exchange or conversion of Exchangeable LP Units or Convertible Securities may be redeemed upon notice in writing provided by Enerflex and upon the payment of consideration per Trust Unit that is at least equal in value to, and in the same form as (including consideration elections, deemed consideration elections and pro-rationing), the consideration paid by the Filer under the Offer, less any applicable withholding taxes;

(d) approving any other Subsequent Acquisition Transaction that may be undertaken by the Filer in accordance with the Deed of Trust, as amended in accordance with the foregoing;

(e) amending the Deed of Trust to permit the Filer, notwithstanding anything to the contrary contained therein, to vote, execute and deliver any instruments of proxy, authorizations, requisitions, resolutions (whether in writing or otherwise), consents and directions in respect of any or all Units deposited under the Offer, if determined necessary or appropriate by the Filer, and authorizing the Filer to execute any such amendment to the Deed of Trust in connection therewith;

(f) directing Computershare, as trustee of Enerflex, and the directors and officers of Enerflex GP and the other affiliates of Enerflex to cooperate in all respects with the Filer regarding the foregoing including in completing any Subsequent Acquisition Transaction undertaken by the Filer in accordance therewith; and

(g) authorizing any officer or director of the Filer, and any other person designated by the Filer in writing, to execute and deliver all documents and do all acts or things, on behalf of Enerflex or otherwise, as may be necessary or desirable to give effect to these special resolutions ((a) through (g), collectively, the Special Resolutions).

12. In order to effect either a Compulsory Acquisition or a Subsequent Acquisition Transaction in accordance with the foregoing, rather than seeking the approval of the Voting Unitholders at a special meeting of Voting Unitholders to be called for such purpose, the Filer intends to rely on Section 11.10 of the Deed of Trust, which specifies that a resolution in writing executed by Voting Unitholders holding a proportion of Trust Units and/or Special Voting Units equal to or greater than the proportion of Trust Units and Special Voting Units required to vote in favour thereof at a meeting of the Voting Unitholders to approve that resolution is valid and binding for all purposes of the Deed of Trust as if such Voting Unitholders had exercised at that time all of the voting rights to which they were then entitled in favour of such resolution at a meeting of Voting Unitholders duly called for the purpose, which written resolution (the Written Resolution) will approve, among other things, the Special Resolutions.

13. Notwithstanding that Section 11.10 of the Deed of Trust permits certain actions of Enerflex, including the Special Resolutions, to be authorized by the Written Resolution, Section 4.2 of MI 61-101 requires in certain circumstances that a Compulsory Acquisition or Subsequent Acquisition Transaction, such as the Special Resolutions, be approved at a meeting of Voting Unitholders called for such purpose and, in connection therewith, that an information circular containing certain prescribed disclosure be sent to Voting Unitholders.

14. It is a condition of the Offer that minority approval (as contemplated in Part 8 of MI 61-101) shall have been obtained. Minority approval (as contemplated in Part 8 of MI 61-101) will be obtained by the Written Resolution rather than at a meeting of Voting Unitholders.

15. The take-over bid circular for the Offer (the Circular) contains all the disclosure required by applicable securities laws, including the take-over bid provisions and form requirements of the Legislation and the applicable provisions of MI 61-101 relating to the disclosure required to be included in an information circular distributed in respect of a business combination under MI 61-101.

16. The Circular contains the text of the Written Resolution.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the MI 61-101 Exemption Sought is granted provided that minority approval (as contemplated in Part 8 of MI 61-101) shall have been obtained by the Written Resolution.

"Naizam Kanji"
Deputy Director
Mergers & Acquisitions, Corporate Finance
Ontario Securities Commission