Civeo Corporation
Civeo Corp (Form: PREM14A, Received: 12/22/2017 06:11:22)
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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 under §240.14a-12

CIVEO 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 computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

Common Shares, no par value, of Civeo Corporation

Class A Series 1 Preferred Shares, no par value, of Civeo Corporation

  (2)  

Aggregate number of securities to which transaction applies:

 

32,790,868 Common Shares

9,679 Class A Series 1 Preferred Shares, initially convertible into 29,330,303 Common Shares

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

Solely for the purpose of calculating the filing fee, the maximum aggregate underlying value of the transaction was calculated as the sum of: (A) $163,035,019 in cash (based upon an exchange rate of 1.285 Canadian dollars to U.S. dollars as of December 15, 2017) and (B) the product of (x) $2.265, the average of the high and low prices per share of Common Shares on December 18, 2017 as quoted on the New York Stock Exchange, and (y) the sum of (1) 32,790,868, the number of Common Shares to be issued in the transaction, and (2) 29,330,303, the number of Common Shares into which the 9,679 Class A Series 1 Preferred Shares to be issued in the transaction are initially convertible.

  (4)  

Proposed maximum aggregate value of transaction:

 

$303,739,471.77

  (5)  

Total fee paid:

 

$37,815.56

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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PRELIMINARY PROXY STATEMENT

SUBJECT TO COMPLETION

 

 

LOGO

CIVEO CORPORATION

Dear Shareholder:

You are cordially invited to attend the special meeting of the shareholders of Civeo Corporation (“Civeo”) to be held at [            ], on [                    ], 2018 at [            ], local time. At the special meeting, our shareholders will be asked to approve the issuance of common shares, no par value, of Civeo (“Common Shares”) and the Preferred Shares (as defined below), together with the issuance of Common Shares upon any conversion of the Preferred Shares, upon the consummation of the transactions contemplated by the Share Purchase Agreement, dated as of November 26, 2017 (the “Purchase Agreement”), by and among Civeo, Noralta Lodge Ltd. (“Noralta”), Torgerson Family Trust, 2073357 Alberta Ltd., 2073358 Alberta Ltd., 1818939 Alberta Ltd., 2040618 Alberta Ltd., 2040624 Alberta Ltd., 989677 Alberta Ltd. and Lance Torgerson, pursuant to which Civeo will acquire, directly or indirectly, all of the issued and outstanding shares of Noralta (the “Acquisition”). We refer to this proposal as the “share issuance proposal.”

After careful consideration, the board of directors of Civeo (the “Civeo Board”) has unanimously determined that the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are advisable and in the best interests of Civeo and its shareholders. The Civeo Board unanimously recommends that Civeo shareholders vote “FOR” the share issuance proposal at the special meeting.

Upon completion of the Acquisition, Civeo will acquire, directly or indirectly, all of the issued and outstanding shares of Noralta. The consideration for the Acquisition payable at closing will be an amount equal to (i) C$209,500,000 in cash, subject to customary adjustments for Noralta’s working capital, debt, cash and unpaid transaction expenses at closing, of which C$28,500,000 will be held in escrow by Alliance Trust Company (the “Escrow Agent”) to support the sellers’ indemnification obligations under the Purchase Agreement, (ii) 32,790,868 Common Shares, of which 13,491,100 shares will be held in escrow by the Escrow Agent and released in three equal installments from escrow upon the satisfaction of certain conditions related to a customer contract remaining in place in June 2021, June 2022 and June 2023, and (iii) 9,679 shares of Class A Series 1 Preferred Shares of Civeo (the “Preferred Shares”) with an initial liquidation preference of US$96,790,000. Based upon the closing price of Common Shares of US$2.21 on December 15, 2017, an exchange rate of 1.29 Canadian dollars to U.S. dollars as of that date and the estimated fair value of the Preferred Shares of 57% of the initial liquidation preference, the value of the consideration payable in the Acquisition is approximately US$290 million. Subject to obtaining regulatory approvals and Civeo shareholder approval of the share issuance proposal, and satisfying certain other closing conditions, it is anticipated that the Acquisition will be completed in the second quarter of 2018. This proxy statement provides you with detailed information about Civeo, Noralta, the Acquisition and the Purchase Agreement. Please give all of the information in this proxy statement your careful attention. Please pay particular attention to the section entitled “ Risk Factors ” beginning on page  16 for a discussion of the risks related to the Acquisition and Civeo following completion of the Acquisition.


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Thank you for your cooperation and continued support.

 

  
Bradley J. Dodson    Richard A. Navarre
Chief Executive Officer    Chairman of the Board

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved of the proposed issuance of the Common Shares or the Preferred Shares in connection with the Acquisition described in this proxy statement or determined if this proxy statement is truthful or complete. Any representation to the contrary is a criminal offense.

This proxy statement is dated [            ] and is first being mailed or otherwise delivered to shareholders of Civeo on or about [            ].


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LOGO

CIVEO CORPORATION

Three Allen Center

333 Clay Street, Suite 4980

Houston, Texas 77002

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On [                    ], 2018

To the Shareholders of Civeo Corporation:

NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of Civeo Corporation (“Civeo”) will be held at [            ], on [                    ], 2018 at [            ], local time to approve the issuance of common shares, no par value, of Civeo (“Common Shares”) and Class A Series 1 Preferred Shares of Civeo (the “Preferred Shares”), together with the issuance of Common Shares upon any conversion of the Preferred Shares, upon the consummation of the transactions contemplated by the Share Purchase Agreement, dated as of November 26, 2017 (the “Purchase Agreement”), by and among Civeo, Noralta Lodge Ltd. (“Noralta”), Torgerson Family Trust, 2073357 Alberta Ltd., 2073358 Alberta Ltd., 1818939 Alberta Ltd., 2040618 Alberta Ltd., 2040624 Alberta Ltd., 989677 Alberta Ltd. and Lance Torgerson, pursuant to which Civeo will acquire, directly or indirectly, all of the issued and outstanding shares of Noralta (the “Acquisition”). We refer to this proposal as the “share issuance proposal.”

The board of directors of Civeo (the “Civeo Board”) has fixed the close of business on [            ] as the record date for determining Civeo shareholders entitled to receive notice of and to vote at the special meeting or any adjournments or postponements of the Civeo special meeting. Only holders of record of Common Shares at the close of business on the record date are entitled to notice of and to vote at the Civeo special meeting. At the close of business on the record date, Civeo had [            ] Common Shares outstanding and entitled to vote.

The Civeo Board, by unanimous vote, recommends that you vote “FOR” the share issuance proposal.

The recommendation of the Civeo Board is based on various factors, including the opinion of Lazard Frères & Co. LLC, financial advisor to the Civeo Board, to the effect that, as of the date of its opinion and based on and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the consideration to be paid by Civeo in the Acquisition is fair, from a financial point of view, to Civeo. A copy of the opinion is included as Annex D to the accompanying proxy statement.

Please note that space limitations make it necessary to limit attendance at the special meeting to shareholders, though each shareholder may be accompanied by one guest. Shareholders of record attending the special meeting should be prepared to present government-issued photo identification for admission. Shareholders owning Common Shares through a broker, bank or other record holder should be prepared to present government-issued photo identification and evidence of share ownership as of [            ], such as an account statement, voting instruction card issued by the broker, bank or other record holder, or other acceptable document, for admission into the special meeting. Check-in at special meeting will begin at [            ] a.m., and you should plan to allow ample time for check-in procedures. Seating at the special meeting is limited and admission is on a first-come, first-served basis. Cameras, cell phones, recording equipment and other electronic devices will not be permitted at the special meeting.


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As shareholders of Civeo, your vote is important. Whether or not you are able to attend the special meeting in person, it is important that your shares be represented. Please vote as soon as possible. Voting promptly, regardless of the number of shares you hold, will aid us in reducing the expense of an extended proxy solicitation. Voting your shares by returning your proxy card or voting instruction card or voting through the Internet or by telephone does not affect your right to vote in person if you attend the special meeting. For specific information regarding the voting of your shares, please refer to the section entitled “Questions and Answers about the Acquisition,” beginning on page 1 of the accompanying proxy statement.

 

By Order of the Civeo Board,
Carolyn J. Stone
Corporate Secretary
Houston, Texas

 

[                    ], 2018


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE ACQUISITION

     1  

SUMMARY

     6  

The Companies and Other Parties to the Purchase Agreement

     6  

Summary of the Acquisition

     7  

The Special Meeting

     7  

Recommendation of the Civeo Board

     8  

Opinion of Civeo’s Financial Advisor

     8  

Material U.S. and Canadian Federal Income Tax Considerations

     8  

Overview of the Purchase Agreement

     8  

Overview of the Registration Rights Agreements

     9  

Preferred Shares

     10  

Directors of Civeo Following the Acquisition

     10  

Expected Timing of the Acquisition

     11  

No Appraisal Rights

     11  

Accounting Treatment

     11  

Regulatory Approvals

     11  

Selected Historical Financial Data of Noralta

     11  

Selected Historical Financial Data of Civeo

     12  

Comparative Per Share Data

     14  

RISK FACTORS

     16  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     22  

EXCHANGE RATE INFORMATION

     24  

THE CIVEO SPECIAL MEETING

     25  

THE ACQUISITION

     28  

Background of the Acquisition

     28  

Reasons for the Acquisition

     32  

Unaudited Financial Projections of Civeo

     34  

Opinion of Civeo’s Financial Advisor

     36  

Regulatory Approvals

     44  

Listing of the Common Shares on the NYSE

     46  

Material Canadian Federal Income Tax Consequences of the Acquisition to Civeo and Civeo Shareholders

     46  

Anticipated Accounting Treatment

     48  

Appraisal Rights

     48  

THE PURCHASE AGREEMENT

     49  

The Acquisition

     49  

Purchase Consideration

     49  

Representations and Warranties

     49  

Material Adverse Effect

     52  

Survival of Covenants, Representations and Warranties

     52  

Covenants of the Sellers and Noralta

     53  

Covenants of Civeo

     54  

Mutual Covenants

     55  

Indemnification

     55  

Conditions Precedent to the Acquisition

     56  

Termination of the Purchase Agreement

     58  

Professional Fees

     59  

Dispute Resolution

     59  

Public Announcement/Proxy Statement

     59  

Applicable Law

     59  

Successors and Assigns

     59  


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Amendment and Waiver

     59  

Civeo Board Following Closing

     60  

Third Parties

     60  

THE REGISTRATION RIGHTS AGREEMENT

     61  

Shelf Registration Statement

     61  

Piggyback Rights

     61  

Limitations; Expenses; Indemnification

     61  

Standstill and Voting Restrictions

     62  

Restrictions on Transfer

     62  

DESCRIPTION OF THE PREFERRED SHARES

     63  

DESCRIPTION OF CIVEO SHARE CAPITAL

     64  

PRINCIPAL SHAREHOLDERS OF CIVEO AFTER THE ACQUISITION

     68  

MARKET PRICE AND DIVIDEND INFORMATION

     69  

UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

     70  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CIVEO

     83  

ADDITIONAL INFORMATION

     84  

FUTURE SHAREHOLDER PROPOSALS

     84  

HOUSEHOLDING OF PROXY MATERIALS

     85  

INCORPORATION BY REFERENCE

     86  

ANNEX A – THE PURCHASE AGREEMENT

     A-1  

ANNEX B – FORM OF REGISTRATION RIGHTS, LOCK-UP AND STANDSTILL AGREEMENT

     B-1  

ANNEX C – FORM OF AMENDMENT TO ARTICLES

     C-1  

ANNEX D – OPINION OF LAZARD FRÈRES  & CO. LLC

     D-1  

ANNEX E – NORALTA LODGE LTD. BUSINESS

     E-1  

ANNEX F –  NORALTA LODGE LTD. CONSOLIDATED FINANCIAL STATEMENTS

     F-1  


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QUESTIONS AND ANSWERS ABOUT THE ACQUISITION

As used in this proxy statement, references to Civeo, we, us and our refer to Civeo Corporation, a corporation incorporated under the laws of the Province of British Columbia, references to Noralta refer to Noralta Lodge Ltd., a corporation incorporated under the laws of the Province of Alberta, or its successor following a pre-closing amalgamation contemplated by the Purchase Agreement, references to the Purchase Agreement refer to the Share Purchase Agreement dated November 26, 2017, by and among Civeo, Noralta, the Torgerson Family Trust, 2073357 Alberta Ltd., 2073358 Alberta Ltd., 1818939 Alberta Ltd., 2040618 Alberta Ltd., 2040624 Alberta Ltd., 989677 Alberta Ltd. and Lance Torgerson, a copy of which is attached as Annex A to this proxy statement, references to the Registration Rights Agreement refer to the Registration Rights, Lock-Up and Standstill Agreement to be entered into by and among Civeo, the Torgerson Family Trust and 989677 Alberta Ltd. at the closing of the Acquisition, a copy of which is attached as Annex B to this proxy statement, references to the Acquisition refer to the Acquisition of Noralta by Civeo contemplated under the Purchase Agreement whereby Noralta will become a wholly-owned subsidiary of Civeo, references to the Civeo Board refer to the board of directors of Civeo, references to Articles refer to the Amended and Restated Articles of Civeo, references to the closing date refer to the closing date of the Acquisition as contemplated under the Purchase Agreement, references to the Common Shares refer to the common shares, no par value, of Civeo, references to the Preferred Shares refer to the Class A Series 1 Preferred Shares, no par value, of Civeo having the terms contained in the proposed amendment to the Articles attached as Annex C to this proxy statement, and references to the special meeting refer to the special meeting of Civeo shareholders. All references to $, US$ or U.S. dollars in this proxy statement are to the currency of the United States, and references to C$ or CAD in this proxy statement are to the currency of Canada.

The following section provides answers to frequently asked questions about the Acquisition and the special meeting. This section, however, only provides summary information. Civeo urges you to carefully read the remainder of this proxy statement, including the annexes to this proxy statement, because the information in this section does not provide all of the information that might be important to you regarding the Acquisition and the other matters being considered at the special meeting.

Q: What is the Acquisition?

A: Under the terms and subject to the conditions set forth in the Purchase Agreement, at closing, Civeo will acquire, directly or indirectly, all of the issued and outstanding shares of Noralta.

Q: Why am I receiving this proxy statement?

A: At the special meeting, you will be asked to approve the issuance of Common Shares and the Preferred Shares, together with the issuance of Common Shares upon any conversion of the Preferred Shares, upon the consummation of the transactions contemplated by the Purchase Agreement.

We encourage you to read this proxy statement carefully, as it contains important information about the share issuance proposal and the special meeting. Your vote is important. You do not need to attend the special meeting in person to vote. We encourage you to vote as soon as possible.

Q: When and where is the Civeo special meeting?

A: The special meeting will be held at [    ], on [            ], 2018 at [            ], local time.

Q: What is required to consummate the Acquisition?

A: To consummate the Acquisition, Civeo shareholders must approve the share issuance proposal. The affirmative vote of the holders of a majority of the Common Shares present in person or represented by proxy and entitled to vote at the special meeting, assuming a quorum is present, is required for the approval of the proposal. For more information, please see the sections entitled “Matters Being Submitted to a Vote” and “The Civeo Special Meeting – Record Date, Quorum, Voting Requirements and Outstanding Shares.”

 

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In addition to the requirement of obtaining such shareholder approval and appropriate regulatory approvals, each of the other closing conditions set forth in the Purchase Agreement must be satisfied or waived. For a more complete description of the closing conditions under the Purchase Agreement, please see the section entitled “The Purchase Agreement – Conditions Precedent to the Acquisition.”

Q: When does Civeo expect to complete the Acquisition?

A: Civeo and Noralta are working to complete the Acquisition as soon as reasonably possible. Civeo and Noralta must first obtain the necessary approvals, including the approval of Civeo’s shareholders of the share issuance proposal, and satisfy the other closing conditions described in the Purchase Agreement. There can be no assurance as to whether all the conditions to the Acquisition will be met, nor any prediction of the exact timing of the completion of the Acquisition. It is possible Civeo and Noralta will not complete the Acquisition. Civeo currently expects to complete the Acquisition during the second quarter of 2018.

Q: What are the material U.S. and Canadian federal income tax consequences of the Acquisition to me?

A: Civeo shareholders will not exchange or surrender their Common Shares in the Acquisition or receive any separate consideration in the Acquisition. Accordingly, Civeo shareholders (excluding any Noralta sellers who also own Common Shares) will not recognize gain or loss as a result of the Acquisition. For more information on Canadian tax consequences of the Acquisition, please see the section entitled “The Acquisition – Material Canadian Federal Income Tax Consequences of the Acquisition to Civeo and Civeo Shareholders.”

Q: What risks should I consider in deciding whether to vote in favor of the proposals?

A: You should carefully review the section of this proxy statement entitled “Risk Factors,” which sets forth certain risks and uncertainties related to the Acquisition and risks and uncertainties to which Civeo’s business will be subject after the Acquisition if it is completed.

You may also obtain additional information about Civeo in documents Civeo files with the U.S. Securities and Exchange Commission (“SEC”). See the section entitled “Additional Information.”

Q: How does the Civeo Board recommend that I vote?

A: After careful consideration, the Civeo Board has unanimously determined that the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are advisable and in the best interests of Civeo and its shareholders. The Civeo Board unanimously recommends that Civeo shareholders vote “FOR” the share issuance proposal at the special meeting.

Q: How do I vote?

A: If you are a registered shareholder of Civeo as of the close of business on the record date for the special meeting, you may vote in person by attending the special meeting or, to ensure your shares are represented at the special meeting, you may authorize a proxy to vote by:

 

    accessing the Internet website specified on your proxy card;

 

    calling the toll-free number specified on your proxy card; or

 

    signing and returning your proxy card in the postage-paid envelope provided.

A proxy card is being sent with this proxy statement to each shareholder of record as of the record date for the special meeting.

 

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If you hold shares in “street name” through a stock brokerage account or through a bank or other nominee, please follow the voting instructions provided by your broker, bank or other nominee to ensure that your shares are represented at the special meeting.

Q: If my shares are held in “street name” by my nominee, will my nominee vote my shares for me?

A: If your shares are held in the name of a bank, broker or other nominee as a custodian or in the general account of the broker or other organization, you are a “street name” holder, and your nominee will not be able to vote your shares unless your nominee receives appropriate instructions from you. We recommend that you contact your nominee. Your nominee can give you directions on how to instruct the voting of your shares.

Please follow the voting instructions provided by your bank, broker or other nominee so that it may vote your shares on your behalf. Please note that you may not vote shares held in street name by returning a proxy card directly to Civeo or by voting in person at the special meeting unless you first obtain a proxy from your bank, broker or other nominee.

Q: Are shareholders able to exercise appraisal rights?

A: Appraisal rights are not available to shareholders in connection with the Acquisition.

Q: What constitutes a quorum at the Civeo special meeting?

A: The presence of shareholders, in person or by proxy, holding at least a majority of the outstanding Common Shares will be required to establish a quorum. The shareholders present in person or by proxy at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Abstentions will be counted as present for purposes of determining whether there is a quorum.

Q: Who can vote at the special meeting?

A: We have fixed [    ] as the record date for the special meeting. Civeo has one outstanding class of Common Shares that entitles holders to vote at meetings of Civeo’s shareholders. If you were a shareholder of Civeo as of the close of business, U.S. Eastern time, on such date, you are entitled to vote on matters that come before the special meeting.

Q: How many votes do I have?

A: You are entitled to one vote for each share you owned as of the close of business on the record date. As of the close of business on the record date, there were [    ] Common Shares outstanding.

Q: Can I change my vote?

A: Yes. You can change your vote at any time before your proxy is voted at the special meeting. In addition to revocation in any other manner permitted by law, you can revoke your proxy in one of the following ways:

 

    filing a written and signed revocation with the Corporate Secretary before the close of business on the last business before the date of the voting of such proxy;

 

    giving a duly executed proxy bearing a later date;

 

    giving a written and signed revocation to the chair of the special meeting at the special meeting; or

 

    attending the special meeting and voting in person.

Your attendance at the special meeting will not itself revoke your proxy.

 

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If you have instructed a broker to vote your shares, you must follow the procedure by your broker to change those instructions.

Q: What will happen if I fail to vote or I abstain from voting?

A: If you are a shareholder of Civeo and (1) are not present in person at the special meeting and do not respond by proxy, or (2) fail to instruct your broker, bank or other nominee to vote, this will have no effect on the share issuance proposal. If you are present in person at the special meeting and abstain from voting or mark your proxy or voting instructions to abstain, this will have the same effect as votes against the share issuance proposal.

Q: What will happen if I return my proxy card without indicating how to vote?

A: If you are a holder of record of shares of Civeo and sign and return your proxy card without indicating how to vote on the share issuance proposal, the shares of Civeo represented by your proxy will be voted “FOR” the proposal.

Q: How can I find out the results of the special meeting?

A: Preliminary voting results will be announced at the special meeting. Final voting results of the special meeting will be filed on the SEC’s website at www.sec.gov.

Q: What will happen to my Common Shares in the Acquisition?

A: Nothing. Each currently outstanding Common Share held by you will remain outstanding as a Common Share after the Acquisition and will continue to be listed on the New York Stock Exchange (the “NYSE”).

Q: Who is soliciting my proxy?

A: Proxies are being solicited by the Civeo Board for use at the special meeting and any adjournment or postponement thereof.

Q: Who is paying for the cost of this proxy solicitation?

A: We are paying the costs of soliciting proxies. Upon request, we will reimburse brokers, banks, trusts and other nominees for reasonable expenses incurred by them in forwarding the proxy materials to beneficial owners of our shares.

In addition to soliciting proxies by mail, the Civeo Board, our officers and employees, or our transfer agent, may solicit proxies on our behalf, personally or by telephone, and we have engaged a proxy solicitor to solicit proxies on our behalf by telephone and by other means. We expect the cost of Okapi Partners LLC, our proxy solicitor, to be approximately $10,000. Computershare, our transfer agent, will serve as the inspector of election for the special meeting.

Q: What consideration is Civeo paying for Noralta in the Acquisition?

A: As further described in this proxy statement, the consideration for the Acquisition payable at closing will be an amount equal to (i) C$209,500,000 in cash, subject to customary adjustments for Noralta’s working capital, debt, cash and unpaid transaction expenses at closing, of which C$28,500,000 will be held in escrow by Alliance Trust Company (the “Escrow Agent”) to support the sellers’ indemnification obligations under the Purchase Agreement, (ii) 32,790,868 Common Shares, of which 13,491,100 shares will be held in escrow by the Escrow Agent and released in three equal installments from escrow upon the satisfaction of certain conditions related to a customer contract remaining in place in June 2021, June 2022 and June 2023, and (iii) 9,679 Preferred Shares with an initial liquidation preference of US$96,790,000.

 

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Q: Will the sellers be able to trade the Common Shares that they receive in the Acquisition?

A: At the closing of the Acquisition, Civeo will enter into the Registration Rights Agreement with the Torgerson Family Trust (the “Torgerson Trust”) and 989677 Alberta Ltd (“989677”), under which, for a period of 18 months following the closing, the Torgerson Trust and 989677 will agree not to transfer any of the Common Shares they receive in the Acquisition without the prior written consent of Civeo, with certain limited exceptions for permitted transfers. Following such 18-month period, the Torgerson Trust and 989677 will be permitted to transfer their Common Shares under Rule 144 or an effective registration statement under the U.S. Securities Act of 1933, as amended, subject to a limitation restricting transfers during any 90-day period of more than 10% of the Common Shares (including the Common Shares received upon conversion of the Preferred Shares) received by the Torgerson Trust and 989677 in the Acquisition. The transfer restrictions on shares held by the Torgerson Trust and 989677 terminate at such time as the shares beneficially owned by the Torgerson Trust and 989677 no longer constitute at least 5% of the Common Shares then outstanding (calculated assuming conversion of all of the outstanding Preferred Shares) or upon a bankruptcy or change of control of Civeo.

Q: Who can help answer my questions?

A: If you would like additional copies, without charge, of this proxy statement or if you have questions about the special meeting, including the procedures for voting your Common Shares, please direct your request to Okapi Partners LLC at 1212 Avenue of the Americas, 24 th Floor, New York, NY 10036 or (877) 629-6355.

 

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SUMMARY

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To understand the Purchase Agreement and the share issuance proposal more fully, you should carefully read this entire proxy statement, including its annexes. The Purchase Agreement is attached as Annex A to this proxy statement. We encourage you to read the Purchase Agreement completely, as it, and not this summary, is the legal document that governs the Acquisition. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under Additional Information beginning on page 84.

The Companies and Other Parties to the Purchase Agreement

Civeo Corporation

Civeo is one of the largest integrated providers of workforce accommodations, logistics and facility management services to the natural resource industry. Civeo’s scalable modular facilities provide long-term and temporary accommodations where traditional accommodations and related infrastructure is insufficient, inaccessible or not cost effective. Once facilities are deployed in the field, Civeo also provides catering and food services, housekeeping, laundry, facility management, water and wastewater treatment, power generation, communications and redeployment logistics. Civeo’s accommodations support its customers’ employees and contractors in the Canadian oil sands and in a variety of oil and natural gas drilling, mining and related natural resource applications as well as disaster relief efforts, primarily in Canada, Australia and the United States. Civeo operates in three principal reportable business segments – Canada, Australia and U.S. The Common Shares are listed on the NYSE under the symbol “CVEO.”

The mailing address of Civeo’s principal executive offices is Three Allen Center, 333 Clay Street, Suite 4980, Houston, Texas 77002 and the telephone number of Civeo’s principal executive offices is (713) 510-2400.

Noralta Lodge Ltd.

Noralta is a premier, Alberta-based provider of remote accommodations to the Canadian oil sands region. Through its full service open lodge accommodations, facilities management services and turnkey solutions, Noralta offers hospitality for thousands of workers in Western Canada’s energy sector. With eleven lodges comprised of over 5,600 owned rooms and 7,700 total rooms strategically located throughout Northern Alberta, Noralta has the capacity to house large workforces and the flexibility to meet its clients’ rapidly changing needs. Noralta also manages camp facilities and provides catering services that serve the Western Canadian energy market. Noralta leverages its expertise in planning, building and managing lodges and its strategic partnerships to act as a valuable partner to its clients.

The mailing address of Noralta’s principal executive offices is 2710 5th Street, Nisku, Alberta, Canada, T9E 0H1 and the telephone number of Noralta’s principal executive offices is (866) 536-8590.

Torgerson Family Trust and other persons

The Torgerson Trust is a trust resident in the Province of British Columbia. The business of the Torgerson Trust is to hold shares of Noralta and other investments. The mailing address of the Torgerson Trust’s principal executive offices is 596 McClure Rd, Kelowna, British Columbia, Canada, V1W 1L3 and the telephone number of the Torgerson Trust’s principal executive offices is (866) 536-8590.

2073357 Alberta Ltd., 2073358 Alberta Ltd., 1818939 Alberta Ltd., 2040618 Alberta Ltd., 2040624 Alberta Ltd. and 989677 Alberta Ltd. are each corporations incorporated under the Laws of the Province of Alberta. Each

 



 

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is a holding company that does not conduct any business other than owning Noralta shares and other investments. The mailing address of each corporation’s principal executive offices is 2710 5th Street, Nisku, Alberta, Canada, T9E 0H1 and the telephone number is (866) 536-8590.

Lance Torgerson is an individual residing in the City of Kelowna, in the Province of British Columbia. His mailing address is 2710 5th Street, Nisku, Alberta, Canada, T9E 0H1 and telephone number is (866) 536-8590.

Summary of the Acquisition

Under the terms and subject to the conditions set forth in the Purchase Agreement, at closing, Civeo will acquire, directly or indirectly, all of the issued and outstanding shares of Noralta. The consideration for the Acquisition payable at closing will be an amount equal to (i) C$209,500,000 in cash, subject to customary adjustments for Noralta’s working capital, debt, cash and unpaid transaction expenses at closing, of which C$28,500,000 will be held in escrow by the Escrow Agent to support the sellers’ indemnification obligations under the Purchase Agreement, (ii) 32,790,868 Common Shares, of which 13,491,100 shares will be held in escrow by the Escrow Agent and released in three equal installments from escrow upon the satisfaction of certain conditions related to a customer contract remaining in place in June 2021, June 2022 and June 2023, and (iii) 9,679 Preferred Shares with an initial liquidation preference of US$96,790,000, initially convertible into 29,330,303 Common Shares. Based upon the closing price of Common Shares of US$2.21 on December 15, 2017, an exchange rate of 1.29 Canadian dollars to U.S. dollars as of that date and the estimated fair value of the Preferred Shares of 57% of the initial liquidation preference, the value of the consideration payable in the Acquisition is approximately US$290 million. After closing of the Acquisition, assuming all shares are released from escrow, current Civeo shareholders will own approximately [    ]% of the outstanding Common Shares and former Noralta shareholders will own approximately [    ]% of the outstanding Common Shares, in each case on an as converted and fully diluted basis.

A copy of the Purchase Agreement is attached as Annex A to this proxy statement and is incorporated by reference herein. You are encouraged to read the Purchase Agreement in its entirety because it is the legal document that governs the Acquisition. For a more complete discussion of the Acquisition, see the sections entitled “The Acquisition” and “The Purchase Agreement.”

The Special Meeting

The special meeting will be held at [    ], on [    ], 2018 at [    ], local time .  At the special meeting, and any adjournments or postponements thereof, Civeo shareholders will be asked to consider and vote on the share issuance proposal.

The Civeo Board has fixed the close of business on [    ] as the record date for determination of Civeo shareholders entitled to notice of, and to vote at, the special meeting and any adjournment or postponement thereof. The affirmative vote of the holders of a majority of the Common Shares present in person or represented by proxy and entitled to vote at the special meeting, assuming a quorum is present, is required for the approval of the share issuance proposal. As of the close of business on the record date for the special meeting, there were [    ] Common Shares outstanding.

As of the close of business on the record date for the special meeting, directors and executive officers of Civeo and their affiliates were entitled to vote [    ] Common Shares, or approximately [    ]% of the Common Shares outstanding. Civeo currently expects that Civeo’s directors and executive officers will vote their shares in favor of the share issuance proposal, although none of them has entered into any agreement obligating them to do so.

 



 

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Recommendation of the Civeo Board

After careful consideration, the Civeo Board has unanimously determined that the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are advisable and in the best interests of Civeo and its shareholders. The Civeo Board unanimously recommends that Civeo shareholders vote “FOR” the share issuance proposal at the special meeting.

For a more complete discussion of the recommendation, see “The Acquisition – Reasons for the Acquisition.”

Opinion of Civeo’s Financial Advisor

On November 26, 2017, Lazard Frères & Co. LLC (“Lazard”), financial advisor to Civeo, rendered its oral opinion, subsequently confirmed in writing by delivery of a written opinion, dated November 26, 2017, to the Civeo Board, that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the consideration payable in the Acquisition was fair, from a financial point of view, to Civeo.

The full text of Lazard’s written opinion, dated November 26, 2017, which sets forth the assumptions made, procedures followed, factors considered and qualifications and limitations on the scope of review undertaken by Lazard in connection with its opinion, is attached to this proxy statement as Annex D and is incorporated into this proxy statement by reference. The description of Lazard’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of Lazard’s written opinion attached as Annex D. You are encouraged to read Lazard’s opinion carefully and in its entirety.

Lazard’s opinion was for the benefit of the Civeo Board (in its capacity as such) and Lazard’s opinion was rendered to the Civeo Board in connection with its evaluation of the Acquisition. Lazard’s opinion was not intended to and does not constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the Acquisition or any matter relating thereto. For a more complete discussion of Lazard’s opinion, see the section entitled “The Acquisition – Opinion of Civeo’s Financial Advisor” and see the written opinion of Lazard attached as Annex D.

Material U.S. and Canadian Federal Income Tax Considerations

Civeo shareholders will not exchange or surrender their Common Shares in the Acquisition or receive any separate consideration in the Acquisition. Accordingly, Civeo shareholders (excluding any Noralta sellers who also own Common Shares) will not recognize gain or loss as a result of the Acquisition. For more information on Canadian tax consequences of the Acquisition, please see the section entitled “The Acquisition – Material Canadian Federal Income Tax Consequences of the Acquisition to Civeo and Civeo Shareholders.”

Overview of the Purchase Agreement

Conditions to Completion of the Acquisition

As more fully described in this proxy statement and in the Purchase Agreement, each party’s obligation to consummate the Acquisition depends on a number of conditions being satisfied (or, if permitted by applicable law, waived), including, among others:

 

    Approval of the share issuance proposal by Civeo shareholders;

 

    Receipt of clearance under the Competition Act (Canada) and approval under the Investment Canada Act and from specified third parties;

 



 

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    Receipt of all other approvals and consents from governmental entities and third parties in respect of the transactions contemplated by the Purchase Agreement on terms and conditions reasonably acceptable to the sellers and Civeo, and the expiration or termination of all applicable statutory and regulatory waiting periods, except in each case where the failure or failures to obtain such approvals and consents would not reasonably be expected to have a material adverse effect;

 

    Performance by the other party in all material respects of all of the obligations and covenants and conditions of the Purchase Agreement to be performed prior to the closing of the Acquisition; and

 

    The accuracy of representations and warranties made by the other party in the Purchase Agreement (subject generally to a material adverse effect standard, with different standards applicable to certain representations and warranties).

For a more complete discussion of the conditions to completion of the Acquisition, see the section entitled “The Purchase Agreement – Conditions Precedent to the Acquisition.”

Termination of the Purchase Agreement

The Purchase Agreement may, by notice in writing given prior to the closing of the Acquisition, be terminated on the earliest of any of the following:

 

    by mutual written consent of Civeo, on the one hand, and the sellers, on the other hand;

 

    by either Civeo, on the one hand, or the sellers, on the other hand, if the Acquisition is not consummated by 5:00 p.m. (Edmonton time) on May 31, 2018 or such later date as mutually agreed to by the parties to the Purchase Agreement;

 

    by either Civeo, on the one hand, or the sellers, on the other hand, if the share issuance proposal is not approved by Civeo’s shareholders at the special meeting or at any adjournment or postponement thereof at which a vote on the share issuance proposal is taken; or

 

    by Civeo if any of the sellers materially breaches any of its non-solicitation covenants in the Purchase Agreement.

Additional Information

For a more complete discussion of the Purchase Agreement, see the section entitled “The Purchase Agreement.”

Overview of the Registration Rights Agreements

At the closing, Civeo will enter into the Registration Rights Agreement with the shareholders of Noralta receiving Common Shares and the Preferred Shares in the Acquisition. Pursuant to the terms and conditions of the Registration Rights Agreement, for a period of 18 months following the closing, the Torgerson Trust and 989677 will agree not to transfer any of their Common Shares without the prior written consent of Civeo, with certain limited exceptions for permitted transfers. Following such 18-month period, the Torgerson Trust and 989677 will be permitted to transfer Common Shares under Rule 144 or an effective registration statement under the U.S. Securities Act of 1933, as amended (the “Securities Act”), subject to a limitation restricting transfers during any 90-day period of more than 10% of the Common Shares (including the Common Shares received upon conversion of the Preferred Shares) received by such shareholders in the Acquisition. The Registration Rights Agreement also provides that, as soon as practicable following the date that is 18 months after the date of the Registration Rights Agreement, but in no event more than 30 days thereafter, Civeo will use its commercially reasonable efforts to prepare and file a shelf registration statement under the Securities Act covering the public

 



 

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offering of the registrable securities held by the Torgerson Trust and 989677 and cause such shelf registration statement to become effective within 150 days after filing. In the event the shelf registration statement does not become effective within the time period specified in the Registration Rights Agreement, the dividend rate of the Preferred Shares will be increased by (i) 0.25% per annum commencing on the first succeeding dividend payment date after such registration default and (ii) 0.25% per annum on each subsequent dividend payment date until such time as a shelf registration statement becomes effective (up to a maximum increase of 1.00% per annum). In addition, the Torgerson Trust and 989677 will have customary “piggy-back” rights with respect to public offerings of Common Shares by Civeo. Finally, the Torgerson Trust and 989677 each agreed to be subject to customary standstill restrictions, including a restriction on additional purchases of Common Shares, and a restriction on voting Common Shares that limits the voting by such holders of Common Shares (including Common Shares held in escrow) in excess of 15% of the voting power of the outstanding Common Shares, which will be voted consistently with all other shareholders of Civeo (other than the Torgerson Trust and 989677). The transfer, standstill and voting restrictions terminate at such time as the shares beneficially owned by the Torgerson Trust and 989677 no longer constitute at least 5% of the Common Shares then outstanding (calculated assuming conversion of all of the outstanding Preferred Shares) or upon a bankruptcy or change of control of Civeo.

For a more detailed discussion of the Registration Rights Agreement, see the section entitled “The Registration Rights Agreement.” The Registration Rights Agreement is attached as Annex B to this proxy statement.

Preferred Shares

Holders of the Preferred Shares will be entitled to receive a 2% annual dividend on the liquidation preference, subject to increase to up to 3% in the circumstances described above under “– Overview of the Registration Rights Agreement”, paid quarterly in cash or, at Civeo’s option, by increasing the Preferred Shares’ liquidation preference or any combination thereof. The Preferred Shares are convertible into Common Shares at a conversion price of US$3.30 per Preferred Share, subject to certain anti-dilution adjustments (the “Conversion Price”). Civeo has the right to elect to convert the Preferred Shares into Common Shares if the 15-day volume weighted average price of the Common Shares is equal to or exceeds the Conversion Price. Holders of the Preferred Shares will have the right to convert the Preferred Shares into Common Shares at any time after two years from the date of issuance, and the Preferred Shares mandatorily convert after five years from the date of issuance. The Preferred Shares also convert automatically into Common Shares upon a change of control of Civeo. Civeo may, at any time and from time to time, redeem any or all of the Preferred Shares for cash at the liquidation preference, plus accrued and unpaid dividends. The Preferred Shares do not have voting rights, except as statutorily required. The terms of the Preferred Shares are included in the proposed amendment to the Articles attached as Annex C to this proxy statement.

For a more detailed discussion of the Preferred Shares, see the section entitled “Description of the Preferred Shares.”

Directors of Civeo Following the Acquisition

Following the Acquisition, and pursuant to the Purchase Agreement, the Civeo Board will comprise eight members, which will include the seven members of the Civeo Board at the time immediately prior to the closing and also Lance Torgerson, or with the prior written consent of Civeo, following the review and approval of the proposed nominee by the nominating committee of the Civeo Board, an alternate nominee of the Torgerson Trust (Lance Torgerson or such alternate nominee being, the “Torgerson Nominee”). The Torgerson Nominee will be added to the Civeo Board as a Class 1 director. Civeo has agreed that, after the closing, Civeo will take all necessary actions to nominate the Torgerson Nominee for election to the Civeo Board at the 2018 annual general meeting of Civeo shareholders, subject to certain limited exceptions.

 



 

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Expected Timing of the Acquisition

Civeo currently expects the closing of the Acquisition to occur in the second quarter of 2018. However, as the Acquisition is subject to the satisfaction or waiver of conditions described in the Purchase Agreement, it is possible that factors outside the control of Civeo and Noralta could result in the Acquisition being completed at an earlier time, a later time or not at all.

No Appraisal Rights

Appraisal rights are not available to holders of the Common Shares in connection with the Acquisition.

Accounting Treatment

In accordance with accounting principles generally accepted in the United States (“GAAP”), Civeo expects to account for the Acquisition by applying the acquisition method of accounting for business combinations. For a more detailed discussion of the accounting treatment of the Acquisition, see the section entitled “The Acquisition – Anticipated Accounting Treatment”.

Regulatory Approvals

The Acquisition is subject to the requirements of the Competition Act (Canada) and the Investment Canada Act. While Civeo and Noralta expect to obtain all required regulatory clearances, these regulatory clearances have not yet been obtained and we cannot assure you that they will be obtained, that they will not involve the imposition of additional conditions on the completion of the Acquisition, or that they will not require changes to the terms of the Purchase Agreement. These conditions or changes could result in the conditions to the Acquisition not being satisfied. We cannot assure you that a challenge to the Acquisition will not be made or that, if a challenge is made, it will not succeed.

For a more complete discussion of the required regulatory approvals, see the section entitled “The Acquisition – Regulatory Approvals.”

Selected Historical Financial Data of Noralta

The selected historical consolidated financial information for Noralta as of May 31, 2017 and 2016 and for each of Noralta’s fiscal years ended May 31, 2017, 2016 and 2015 have been derived from, and should be read in conjunction with, Noralta’s audited financial statements and the notes thereto included in Annex F to this proxy statement (“Noralta’s Financial Statements”). Selected consolidated financial information as of May 31, 2015 and as of, and for, the fiscal years ended, May 31, 2014 and 2013 have been omitted because of Noralta’s status as an emerging growth company under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and in accordance with related guidance provided by the SEC.

Noralta’s Financial Statements are presented in Canadian dollars. On December 15, 2017, the noon buying rate was $1.00 = C$1.29. For additional historical exchange rate information, see the section entitled “Exchange Rate Information.” In addition, Noralta is a privately held company. Noralta’s Financial Statements have been prepared in accordance with Canadian Accounting Standards for Private Enterprises (“ASPE”), which differs in significant respects from U.S. GAAP. For a discussion of the significant differences relating to Noralta’s Financial Statements, see Note 24 to Noralta’s Financial Statements. This historical financial information may not be indicative of Noralta’s future performance.

 



 

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Amounts presented in the tables below are in accordance with ASPE.

 

     For the fiscal year ended May 31,  
     2017      2016      2015  
     (In thousands)  

Statement of Operations Data :

        

Revenues

   C$ 158,725      C$ 94,953      C$ 132,436  

Earnings (loss) from operations

     41,726        (14,584      (10,027

Net earnings (loss)

     37,408        (10,068      (12,919

Earnings (loss) from operations per common share

     417        (146      (100

Net earnings (loss) per common share

     374        (101      (129

 

     As of May 31,  
     2017      2016  
     (In thousands)  

Balance Sheet Data :

     

Total assets

   C$ 214,048      C$ 199,454  

Long-term obligations, including debt, obligations under capital leases and promissory note payable

     100,985        147,532  

Preferred shares

     9,607        9,624  

Common shares

     0.1        0.1  

Total Noralta shareholders’ equity

     57,542        20,957  

Amounts in the tables below are presented in accordance with U.S. GAAP.

 

     For the fiscal year ended May 31,  
             2017                      2016          
     (In thousands)  

Statement of Operations Data :

     

Revenues

   C$ 160,879      C$ 94,972  

Earnings (loss) from operations

     42,282        (14,584

Net earnings (loss)

     37,786        (10,068

Earnings (loss) from operations per common share

     423        (146

Net earnings (loss) per common share

     378        (101

 

     As of May 31,  
     2017      2016  
     (In thousands)  

Balance Sheet Data :

     

Total assets

   C$ 204,027      C$ 193,803  

Long-term obligations, including debt, obligations under capital leases and promissory note payable

     100,985        147,532  

Preferred shares

     479,246        480,068  

Common shares

     0.1        0.1  

Total Noralta shareholders’ equity

     (427,092      (464,784

Selected Historical Financial Data of Civeo

The following tables present the selected historical consolidated financial information of Civeo and combined financial information of the accommodations business. The term “accommodations business” refers to the historical accommodations segment of Oil States International, Inc. (“Oil States”) reflected in its historical

 



 

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combined financial statements. The balance sheet data as of December 31, 2016 and 2015 and the statement of operations data for each of the years ended December 31, 2016, 2015 and 2014 are derived from Civeo’s audited financial statements incorporated by reference in this proxy statement. The balance sheet data as of December 31, 2014, 2013 and 2012 and statement of operations data for the years ended December 31, 2013 and 2012 are derived from Civeo’s audited combined financial statements not incorporated by reference in this proxy statement. The balance sheet data as of September 30, 2017 and the statement of operations data for the nine-months ended September 30, 2017 and 2016 are derived from Civeo’s unaudited consolidated financial statements incorporated by reference in this proxy statement.

All financial information presented after Civeo’s spin-off from Oil States represents the consolidated results of operations and financial position of Civeo. Accordingly:

 

    The consolidated statement of operations data for the nine-months ended September 30, 2017 and 2016 and the years ended December 31, 2016 and 2015 consists entirely of the consolidated results of Civeo. The consolidated statement of operations data for the year ended December 31, 2014 consists of (i) the combined results of the Oil States accommodations business for the five months ended May 30, 2014 and (ii) the consolidated results of Civeo for the seven months ended December 31, 2014. The consolidated statements of operations data for the years ended December 31, 2013 and 2012 consist entirely of the combined results of the Oil States accommodations business.

 

    The consolidated balance sheet data at September 30, 2017 and December 31, 2016, 2015 and 2014 consists entirely of the consolidated balances of Civeo, while at December 31, 2013 and 2012, it consists entirely of the combined balances of the Oil States accommodations business.

The historical financial information presented below should be read in conjunction with Civeo’s consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference in this proxy statement. The financial information may not be indicative of Civeo’s future performance and, for periods prior to its spin-off from Oil States, does not necessarily reflect what the financial position and results of operations would have been had Civeo operated as a separate, stand-alone entity during those periods, including changes that have occurred in Civeo’s operations as a result of the spin-off.

 

    For the nine months
ended September 30,
    For the year ended December 31,  
    2017     2016     2016     2015     2014     2013     2012  
    (In thousands, except per share data)  

Statement of Operations Data :

             

Revenues

  $ 280,928     $ 306,309     $ 397,230     $ 517,963     $ 942,891     $ 1,041,104     $ 1,108,875  

Operating income (loss)

    (52,443     (81,169     (95,760     (145,003     (142,891     259,456       352,929  

Net income (loss) attributable to Civeo or the Accommodations Business of Oil States International, Inc., as applicable

    (58,134     (80,439     (96,388     (131,759     (189,043     181,876       244,721  

Diluted net income (loss) per share attributable to Civeo or the Accommodations Business of Oil States International, Inc., as applicable (1)

    (0.46     (0.75     (0.90     (1.24     (1.77     1.70       2.29  

 



 

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    As of
September 30,
    As of December 31,  
    2017     2016     2015     2014     2013     2012  
    (In thousands, except per share data)  

Balance Sheet Data:

           

Total assets

  $ 929,750     $ 910,446     $ 1,066,529     $ 1,829,161     $ 2,123,237     $ 2,132,925  

Long-term debt to affiliates

    —         —         —         —         335,171       358,316  

Long-term debt to third-parties

    307,522       337,800       379,416       755,625       —         123,497  

Total Civeo shareholders’ equity or Oil States net investment, as applicable

    525,829       475,467       563,245       858,001       1,591,034       1,410,397  

Cash dividends per share

    —         —         —         0.26       —         —    

 

(1) On May 30, 2014, 106,538,044 Common Shares were distributed to Oil States stockholders in connection with the spin-off of Civeo from Oil States. For comparative purposes, and to provide a more meaningful calculation of weighted-average shares outstanding in Civeo’s diluted net income (loss) per share calculation, these shares were assumed to be outstanding as of the beginning of each period prior to the separation presented in the calculation of weighted-average shares. In addition, the dilutive securities outstanding at May 30, 2014 were also assumed to be outstanding for each of the periods presented prior to the spin-off.

Comparative Per Share Data

Set forth below is income (loss) from continuing operations, cash dividends and book value per share data for:

 

    Civeo on a historical basis, prepared under U.S. GAAP and presented in U.S. dollars, as of and for the nine months ended September 30, 2017 and the year ended December 31, 2016;

 

    Noralta on a historical basis, prepared under ASPE and presented in Canadian dollars, as of and for the twelve months ended May 31, 2017;

 

    Civeo on a pro forma combined basis, prepared under U.S. GAAP and presented in U.S. dollars, as of and for the nine months ended September 30, 2017 and for the year ended December 31, 2016; and

 

    Noralta on a pro forma equivalent share basis, prepared under U.S. GAAP and presented in U.S. dollars, as of and for the nine months ended September 30, 2017 and for the year ended December 31, 2016 calculated by multiplying (i) the applicable Civeo pro forma combined amounts by (ii) the quotient obtained by dividing the number of Common Shares to be issued in the Acquisition, assuming no conversion of the Preferred Shares, by the number of outstanding Noralta common shares.

You should read the information set forth below in conjunction with the selected historical financial information of Civeo and Noralta included elsewhere in this proxy statement and the historical financial statements and related notes of Civeo that are incorporated into this proxy statement by reference. See “– Selected Historical Financial Information of Civeo,” “– Selected Historical Financial Information of Noralta,” Noralta’s Financial Statements attached as Annex F hereto and “Additional Information.”

 



 

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The unaudited pro forma combined information below is not necessarily indicative of the operating results or financial position that would have occurred if the Acquisition had been completed as of the periods presented, nor is it necessarily indicative of the future operating results or financial position of the Civeo. In addition, the unaudited pro forma combined information does not purport to indicate balance sheet data or results of operations data as of any future date or for any future period.

 

     As of and for the  
     Nine months ended
September 30, 2017
     Year ended
December 31, 2016
 

Civeo Historical

     

Loss from continuing operations per common share

     

Basic

   $ (0.46    $ (0.90

Diluted

     (0.46      (0.90

Dividends declared per common share

     —          —    

Book value per share (1)

     3.98        4.41  

 

     Year ended
May 31, 2017
 

Noralta Historical

  

Income from continuing operations per common share

  

Basic

   C$ 377,860  

Diluted

     377,860  

Dividends declared per common share

     —    

Book value per share (1)

     (4,270,920

 

     As of and for the  
     Nine months ended
September 30, 2017
     Year ended
December 31, 2016
 

Civeo Pro Forma Combined

     

Loss from continuing operations per common share

     

Basic

   $ (0.27    $ (0.61

Diluted

     (0.27      (0.61

Dividends declared per common share

     —          —    

Book value per share (1)

     3.92     

 

     As of and for the  
     Nine months ended
September 30, 2017
     Year ended
December 31, 2016
 

Noralta Equivalent

     

Loss from continuing operations per common share

     

Basic

   $ (88,535    $ (200,024

Diluted

     (88,535      (200,024

Dividends declared per common share

     —          —    

Book value per share (1)

     1,285,403     

 

(1) Amount is calculated by dividing shareholders’ deficit or shareholders’ equity by common shares, as applicable, outstanding.

 



 

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RISK FACTORS

In addition to the other information contained or incorporated by reference into this proxy statement, including the matters addressed in the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements,” shareholders should carefully consider the risks described below relating to the Acquisition and Civeo following the Acquisition. The risks and uncertainties described below are not the only ones Civeo faces. Additional risks and uncertainties not presently known to Civeo or that Civeo currently considers immaterial may also impair Civeo’s operations. If any of the following risks actually occur, Civeo’s business, financial conditions and/or results of operations could be materially adversely affected, the trading price of the Common Shares could decline and a shareholder could lose all or part of his or her investment.

Risks Related to the Proposed Acquisition

There is no assurance when or even if the Acquisition will be completed. Failure to obtain required approvals necessary to satisfy closing conditions may delay or prevent completion of the Acquisition.

The completion of the Acquisition is subject to a number of closing conditions, some of which are out of Civeo’s control, including the following:

 

    the share issuance proposal being approved by Civeo’s shareholders;

 

    the accuracy of the representations and warranties of the parties at and as of the closing of the Acquisition (subject to certain materiality qualifiers);

 

    the performance in all material respects of each party’s obligations under the Purchase Agreement required to be performed by it on or prior to the closing date of the Acquisition;

 

    the absence of a Material Adverse Effect on either party; and

 

    the receipt of Canadian regulatory approvals and clearances, including under the Competition Act (Canada) and the Investment Canada Act, and other regulatory and third party consents.

For a more complete summary of the conditions that must be satisfied or waived prior to closing of the Acquisition, see the section entitled “The Purchase Agreement – Conditions Precedent to the Acquisition.”

Civeo cannot be certain that its shareholders will approve the share issuance proposal. Civeo also cannot be certain when it and Noralta will be able to satisfy the other closing conditions or whether those closing conditions will be satisfied. If any of these conditions are not satisfied or waived prior to May 31, 2018, it is possible that the Purchase Agreement may be terminated. Although Civeo and Noralta have agreed in the Purchase Agreement to use commercially reasonable efforts, subject to certain limitations, to complete the Acquisition as promptly as possible, these and other conditions to the completion of the Acquisition may fail to be satisfied.

Current Civeo shareholders will have a reduced ownership and voting interest in Civeo after the Acquisition and will exercise less influence over management.

Pursuant to the terms of the Purchase Agreement, at the closing of the Acquisition, Civeo will acquire, directly or indirectly, all of the issued and outstanding shares of Noralta. The consideration for the Acquisition payable at closing will include 32,790,868 Common Shares and 9,679 Preferred Shares, initially convertible into 29,330,303 Common Shares. After closing of the Acquisition, assuming all shares are released from escrow, current Civeo shareholders will own approximately [    ]% of the outstanding Common Shares and former Noralta shareholders will own approximately [    ]% of the outstanding Common Shares, in each case on an as converted and fully diluted basis. Accordingly, the issuance of Civeo shares to Noralta shareholders in the Acquisition will reduce the relative voting power of current Civeo shareholders. Consequently, Civeo shareholders as a group will have less influence over the management and policies of Civeo after the Acquisition than prior to the Acquisition. Civeo shareholders’ voting power, and therefore influence over the management and policies of Civeo, could further decrease if any Preferred Shares are converted to Common Shares.

 

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Noralta shareholders may receive consideration in the Acquisition that is greater than or less than the fair market value of the Noralta shares.

The outstanding share capital of Noralta is privately held and is not traded in any public market. The lack of a public market makes it difficult to determine the fair market value of Noralta shares. Since the consideration to be issued to Noralta shareholders was determined based on negotiations between the parties, it is possible that the value of the consideration to be given to Noralta shareholders in connection with the Acquisition will be greater than the fair market value of Noralta shares.

Because the Acquisition will be completed after the date of the Civeo special meeting, at the time of the special meeting, you may not know the exact value of the Civeo shares that the Noralta shareholders will receive upon completion of the Acquisition.

The number of Civeo shares to be issued in the Acquisition is fixed and will not be adjusted for changes in Civeo’s share price. Changes in the price of the Common Shares before the closing of the Acquisition will affect the market value of the consideration that Noralta shareholders will receive at the closing. The price of the Common Shares at the closing of the Acquisition may vary from its price on the date the Purchase Agreement was executed, on the date of this proxy statement and on the date of the special meeting. As a result, the value represented by the Civeo shares to be issued, and therefore the total amount of the consideration to be paid, will also vary. These variations could result from changes in the business, operations or prospects of Civeo before or following the Acquisition, regulatory considerations, general market and economic conditions and other factors both within and beyond the control of Civeo or Noralta. The Acquisition may be completed significantly after the date of the Civeo special meeting. Therefore, at the time of the special meeting, Civeo shareholders will not know with certainty the value of the Civeo shares that will be issued upon closing of the Acquisition.

The pendency of the Acquisition could have an adverse effect on the trading price of the Common Shares and the business, financial condition, results of operations or business prospects for Civeo and/or Noralta.

The pendency of the Acquisition could disrupt Civeo’s or Noralta’s businesses in the following ways, including:

 

    third parties may seek to terminate or renegotiate their relationships with Civeo or Noralta, or may delay or defer certain business decisions, as a result of the Acquisition, whether pursuant to the terms of their existing agreements with Civeo or Noralta or otherwise;

 

    the attention of Civeo and Noralta management may be directed toward completion of the Acquisition and related matters and may be diverted from the day-to-day business operations of their respective companies, including from other opportunities that otherwise might be beneficial to Civeo and Noralta;

 

    employee retention and recruitment may be challenging before the completion of the Acquisition, as employees and prospective employees may experience uncertainty about their future roles; and

 

    the Purchase Agreement restricts Civeo and Noralta from taking certain specified actions while the Acquisition is pending without first obtaining written consent of the other party, which may restrict Civeo or Noralta from pursuing otherwise attractive business opportunities and making other changes to their businesses before completion of the Acquisition or termination of the Purchase Agreement.

Should they occur, any of these matters could adversely affect the trading price of the Common Shares or harm the financial condition, results of operations or business prospects of Civeo and/or Noralta.

 

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The rights of holders of the Common Shares will be subordinate to the rights of the holders of the Preferred Shares.

The holders of the Preferred Shares issued in the Acquisition will have rights and preferences superior to those of the holders of the Common Shares. These rights are more fully set forth in the proposed amendment to the Articles attached as Annex C to this proxy statement, and include, among others:

 

    the right to receive a liquidation preference prior to any distribution of Civeo’s assets to the holders of the Common Shares;

 

    the right to receive a 2% annual dividend, paid quarterly in cash or, at Civeo’s option, by increasing the shares’ liquidation preference, or any combination thereof; and

 

    the right to convert the Preferred Shares into Common Shares after two years from the closing of the Acquisition at an initial conversion price of US$3.30 per Common Share, which may not be the fair market value of such shares at the time of conversion.

The Acquisition may be completed even though material adverse changes subsequent to the announcement of the Acquisition, such as industry-wide changes or other events, may occur.

In general, either party can refuse to complete the Acquisition if there is a material adverse change affecting the other party. However, some types of changes do not permit either party to refuse to complete the Acquisition, even if such changes would have a material adverse effect on either of the parties. For example, a worsening of Noralta’s or Civeo’s financial condition or results of operations due to a decrease in commodity prices or general economic conditions would not give the other party the right to refuse to complete the Acquisition. If adverse changes occur that affect either party but the parties are still required to complete the Acquisition, Civeo’s share price, business and financial results after the Acquisition may suffer.

Failure to complete the Acquisition could negatively impact Civeo’s share price and future business and financial results.

If the Acquisition is not completed, the ongoing business of Civeo may be adversely affected, and Civeo may be subject to several risks, including the following:

 

    having to pay certain costs relating to the Acquisition, such as legal, accounting, financial advisor and other fees and expenses;

 

    a potential decline in the price of the Common Shares to the extent that the current market price reflects a market assumption that the Acquisition will be completed;

 

    reputational harm due to the adverse perception of any failure to successfully complete the Acquisition; and

 

    having had the focus of Civeo’s management on the Acquisition instead of on pursuing other opportunities that could have been beneficial to the company.

Civeo has incurred and will continue to incur significant transaction costs in connection with the Acquisition.

Civeo expects to incur a number of non-recurring transaction-related costs associated with completing the Acquisition, combining the operations of the two organizations and achieving desired synergies. These fees and costs will be substantial. Non-recurring transaction costs include, but are not limited to, fees paid to financial, legal and accounting advisors, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of the businesses of Civeo and Noralta. There can be no assurance that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction-related costs over time.

 

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Civeo’s financial estimates are based on various assumptions that may not be realized.

The financial estimates set forth in the forecasts included under the section “The Acquisition – Unaudited Financial Projections of Civeo” were based on assumptions of, and information available to, Civeo’s management when prepared and these estimates and assumptions are subject to uncertainties, many of which are beyond Civeo’s control and may not be realized. Many factors mentioned in this proxy statement, 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 Civeo’s future results. As a result of these contingencies, actual future results may vary materially from Civeo’s estimates. In view of these uncertainties, the inclusion of financial estimates in this proxy statement is not and should not be viewed as a representation that the forecasted results will necessarily reflect actual future results.

Civeo’s financial estimates 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 Civeo undertakes no obligation, other than as required by applicable law, to update the financial estimates herein 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 financial estimates included in this proxy statement have been prepared by, and are the responsibility of, Civeo. Moreover, neither Civeo’s independent accountants, nor any other independent accountants, have compiled, examined or performed any procedures with respect to Civeo’s prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or achievability thereof, and, accordingly, such independent accountants assume no responsibility for, and disclaim any association with, Civeo’s prospective financial information. The reports of such independent accountants included or incorporated by reference herein, as applicable, relate exclusively to the historical financial information of the entities named in those reports and do not cover any other information in this proxy statement and should not be read to do so. See “The Acquisition – Unaudited Financial Projections of Civeo” for more information.

The opinion obtained by the Civeo Board from Lazard does not and will not reflect changes in circumstances after the date of such opinion.

On November 26, 2017, Lazard delivered an opinion to the Civeo Board that, as of the date of such opinion, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the consideration payable in the Acquisition was fair, from a financial point of view, to Civeo. Changes in the operations and prospects of Civeo or Noralta, general market and economic conditions and other factors that may be beyond the control of Civeo and Noralta, and on which the opinion of Lazard was based, may alter the value of Civeo or Noralta or the price of Common Shares by the time the Acquisition is completed. Civeo has not obtained, and does not expect to request, an updated opinion from Lazard. Lazard’s opinion does not speak to the time when the Acquisition will be completed or to any date other than the date of such opinion. As a result, the opinion does not and will not address the fairness, from a financial point of view, of the consideration to be paid by Civeo in the Acquisition pursuant to the Purchase Agreement at the time the Acquisition is completed or at any time other than November 26, 2017. For a more complete description of the opinion that the Civeo Board received from its financial advisor and a summary of the material financial analyses it provided to the Civeo Board in connection with rendering such opinion, please refer to “The Acquisition – Opinion of Civeo’s Financial Advisor” and the full text of such written opinion included as Annex D to this proxy statement.

 

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Risks Related to Civeo Following the Acquisition

The pro forma financial statements included in this proxy statement are based on various assumptions that may not prove to be correct, and they are presented for illustrative purposes only and may not be an indication of Civeo’s financial condition or results of operations following the Acquisition.

The pro forma financial statements contained in this proxy statement are based on various adjustments, assumptions and preliminary estimates and may not be an indication of Civeo’s financial condition or results of operations following the Acquisition for several reasons. See “Unaudited Pro Forma Combined Financial Data.” The actual financial condition and results of operations of Civeo following the Acquisition may not be consistent with, or evident from, these pro forma financial statements. In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect Civeo’s financial condition or results of operations following the Acquisition. Any potential decline in Civeo’s financial condition or results of operations may cause significant variations in the price of the Common Shares.

The failure to integrate successfully the businesses of Civeo and Noralta in the expected timeframe would adversely affect Civeo’s future results following the completion of the Acquisition.

The success of the Acquisition will depend, in large part, on the ability of Civeo following the completion of the Acquisition to realize the anticipated benefits, including operating synergies, from combining the businesses of Civeo and Noralta, which have previously been operated independently. To realize these anticipated benefits, Civeo must successfully integrate Noralta into Civeo’s business. This integration will be complex and time-consuming, and Civeo and Noralta will only be able to conduct limited planning regarding the integration of the two companies prior to completion of the Acquisition. Significant management attention and resources will be required to integrate the two companies. Delays in this process could adversely affect Civeo’s business, financial results, financial condition and share price following the Acquisition.

Potential difficulties that may be encountered in the integration process include the following:

 

    complexities associated with managing the larger, combined business;

 

    integrating personnel from the two companies;

 

    potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Acquisition; and

 

    performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Acquisition and integrating the companies’ operations.

Even if Civeo was able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time.

The trading price of the Common Shares after the Acquisition may be affected by factors different from those affecting the price of the Common Shares before the Acquisition.

The results of operations of Civeo, as well as the trading price of the Common Shares, after the Acquisition may be affected by factors different from those currently affecting Civeo’s results of operations and the trading price of the Common Shares. These factors include:

 

    a greater number of Common Shares outstanding as compared to the number of currently outstanding Common Shares;

 

    different shareholders; and

 

    different assets and capital structure.

 

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Accordingly, the historical trading prices and financial results of Civeo may not be indicative of future trading prices of the Common Shares after the Acquisition.

Civeo’s future results will suffer if it does not effectively manage its expanded operations following the Acquisition.

Following the Acquisition, the size of Civeo’s business will be larger than its current business. Civeo’s future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for Civeo’s management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. Civeo can offer no assurance that it will be successful or will realize the benefits currently anticipated to result from the Acquisition.

The loss of key personnel could have a material adverse effect on Civeo’s business, financial condition or results of operations.

The success of the Acquisition will depend in part on Civeo’s ability to retain key Civeo and Noralta employees who continue employment with Civeo after the Acquisition is completed. It is possible that these employees might decide not to remain with Civeo after the Acquisition.

If these key employees terminate their employment, Civeo’s activities might be adversely affected, management’s attention might be diverted from successfully integrating Noralta’s operations to recruiting suitable replacements and Civeo’s business, financial condition or results of operations could be adversely affected. In addition, Civeo might not be able to locate suitable replacements for any such key employees who leave the company or offer employment to potential replacements on reasonable terms.

Civeo’s success will also depend on pre-existing relationships with third parties, which relationships may be affected by the Acquisition. Any adverse changes in these relationships could adversely affect Civeo’s business, financial condition or results of operations.

Civeo’s success will be dependent on the ability to maintain and renew relationships with pre-existing third parties, including local Aboriginal groups. For example, Noralta currently has two significant contracts for the provision of accommodation services. One of such contracts extends through April 2022, and the second contract has a primary term through 2027, with early termination by the customer permitted starting in 2021. Following the Acquisition, Civeo will be subject to the risks, among others, of early termination of the contracts, failure to extend the contracts beyond their primary term and a decrease in demand under the contracts below Civeo’s expectations. In addition, the revenue Civeo will derive under the contracts following the Acquisition will be variable and depend on the utilization by the customers of Civeo’s services under the contracts and other factors that are beyond Civeo’s control. There can be no assurance that Civeo’s business will be able to maintain these contracts or other pre-existing business and other relationships, including with local Aboriginal groups, or enter into or maintain other new business relationships, on acceptable terms, if at all. The failure to maintain these contracts and other important pre-existing third party relationships could have a material adverse effect on the business, financial condition or results of operations of Civeo after the Acquisition.

Other Risks Related to the Combined Company

In addition to the foregoing risks, Civeo is, and will continue to be, subject to the risks described in Civeo’s most recent Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q. All such reports are or will be filed with the SEC and are incorporated by reference into this proxy statement. See the section entitled “Additional Information.”

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement, including information included or incorporated by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. You can typically identify forward-looking statements by the use of forward-looking words such as “expect,” “anticipate,” “target,” “goal,” “project,” “intend,” “plan,” “believe,” “budget,” “should,” “continue,” “could,” “forecast,” “may,” “might,” “potential,” “strategy,” “will,” “would,” “seek,” “estimate,” or variations of such words and similar expressions, although the absence of any such words or expressions does not mean that a particular statement is not a forward-looking statement. It is important to note that Civeo’s and Noralta’s goals and expectations are not predictions of actual performance. Any statements about the benefits of the Acquisition or projections regarding Civeo’s future financial condition, results of operations and business are also forward-looking statements. Without limiting the generality of the preceding sentence, certain statements contained in the sections entitled “The Acquisition – Background of the Acquisition,” “The Acquisition – Reasons for the Acquisition,” “The Acquisition – Unaudited Financial Projections of Civeo” and “The Acquisition – Opinion of Civeo’s Financial Advisor” may also constitute forward-looking statements.

These forward-looking statements represent Civeo’s and Noralta’s intentions, plans, expectations, assumptions and beliefs about future events, including the completion of the Acquisition, and are subject to risks, uncertainties and other factors. Many of these factors are outside the control of Civeo or Noralta and could cause actual results to differ materially from the results expressed or implied by these forward-looking statements. In addition to the risk factors described in the section of this proxy statement entitled “Risk Factors,” these factors include:

 

    the risk that the Acquisition may not be completed in a timely manner or at all, which may adversely affect Civeo’s business and the price of its Common Shares;

 

    risks associated with the failure to satisfy the conditions to the consummation of the Acquisition, including the approval of the share issuance proposal by Civeo’s shareholders and the receipt of certain governmental and regulatory approvals;

 

    risks associated with the ability of Civeo to successfully integrate Noralta’s operations;

 

    risks associated with the ability of Civeo to implement its plans, forecasts and other expectations with respect to Noralta’s business after the completion of the Acquisition and to realize the anticipated synergies and cost savings in the time frame anticipated or at all;

 

    risks associated with the occurrence of any event, change or other circumstance that could give rise to the termination of the Purchase Agreement;

 

    risks associated with the effect of the announcement or pendency of the Acquisition on Civeo’s or Noralta’s business relationships, operating results and business generally;

 

    risks that the Acquisition disrupts current plans and operations of Civeo or Noralta and potential difficulties in employee retention as a result of the Acquisition;

 

    risks related to diverting management’s attention from Civeo’s and Noralta’s ongoing business operations;

 

    risks associated with any legal proceedings that may be instituted related to the Purchase Agreement or the Acquisition;

 

    risks associated with the general nature of the accommodations industry (including lower than expected room requirements);

 

    risks associated with the level of supply and demand for oil, coal, natural gas, iron ore and other minerals, including the level of activity and developments in the Canadian oil sands, the level of demand for coal and other natural resources from Australia, and fluctuations in the current and future prices of oil, coal, natural gas, iron ore and other minerals, risks associated with currency exchange rates;

 

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    risks associated with Civeo’s redomiciliation to Canada, including, among other things, risks associated with changes in tax laws or their interpretations; and

 

    risks associated with the development of new projects, including whether such projects will continue in the future and other factors discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Civeo’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and other reports Civeo may file from time to time with the SEC.

For any forward-looking statements made in this proxy statement or in any documents incorporated by reference, Civeo claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. All subsequent written and oral forward-looking statements concerning the Acquisition or other matters addressed in this proxy statement and attributable to Civeo, Noralta or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this proxy statement.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this proxy statement and should be read in conjunction with the risk factors and other disclosures contained or incorporated by reference into this proxy statement. The areas of risk and uncertainty described above, which are not exhaustive, should be considered in connection with any written or oral forward-looking statements that may be made in this proxy statement or on, before or after the date of this proxy statement by Civeo or Noralta or anyone acting for any or both of them. Except as required by applicable law or regulation, Civeo undertakes no obligation to release publicly or otherwise make any revisions to any forward-looking statements, to report events or circumstances after the date of this proxy statement or to report the occurrence of unanticipated events.

 

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EXCHANGE RATE INFORMATION

The table below sets forth exchange rate information of C$ per US$1.00 for the time periods indicated. On December 15, 2017, the noon buying rate was $1.00 = C$1.29.

 

     Exchange Rate  

Period

   Period end      Average (1)      Low      High  
     (C$ per US$1.00)  

Fiscal 2013 (June 1, 2012 – May 31, 2013)

     1.03        1.01        0.97        1.04  

Fiscal 2014 (June 1, 2013 – May 31, 2014)

     1.09        1.07        1.02        1.13  

Fiscal 2015 (June 1, 2014 – May 31, 2015)

     1.25        1.17        1.06        1.28  

Fiscal 2016 (June 1, 2015 – May 31, 2016)

     1.31        1.32        1.22        1.46  

Fiscal 2017 (June 1, 2016 – May 31, 2017)

     1.35        1.33        1.27        1.37  

Fiscal 2018

           

June 2018

     1.30        1.33        1.30        1.35  

July 2018

     1.25        1.27        1.24        1.30  

August 2018

     1.25        1.26        1.25        1.27  

September 2018

     1.25        1.23        1.21        1.25  

October 2018

     1.29        1.26        1.25        1.29  

November 2018

     1.29        1.28        1.27        1.29  

December 2018 (through December 15, 2018)

     1.28        1.28        1.27        1.29  

 

Source: Federal Reserve Bank of New York

(1) Annual averages were calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages are calculated by using the average of the daily rates during the relevant month.

 

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THE CIVEO SPECIAL MEETING

Date, Time and Place

The special meeting of the shareholders of Civeo will be held at [                    ], on [                    ], 2018 at [            ], local time.

Purpose of the Civeo Special Meeting

The purpose of the special meeting is to consider and vote on the share issuance proposal. Under NYSE rules, a company listed on the NYSE is required to obtain shareholder approval before the issuance of common shares, or of securities convertible into or exercisable for common shares, in connection with the acquisition of another company if the number of common shares to be issued is, or will be upon issuance, equal to or exceeds 20% of the number of common shares outstanding before such issuance in connection with such proposed acquisition.

The aggregate number of Common Shares, and Preferred Shares convertible into Common Shares, to be issued in connection with the Acquisition will exceed 20% of the Common Shares outstanding before such issuance. For this reason, Civeo must obtain the approval of Civeo shareholders, in accordance with NYSE rules, for the issuance of the Common Shares and the Preferred Shares in the Acquisition. Accordingly, Civeo is asking its shareholders to approve the share issuance proposal.

As of the date of this proxy statement, the Civeo Board does not know of any business to be presented at the special meeting other than as set forth in the notice accompanying this proxy statement. If any other matters should properly come before the special meeting, or any adjournment or postponement of the special meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the best judgment of the person(s) voting the proxies, pursuant to the discretionary authority granted to such person(s).

Recommendations of the Civeo Board

After careful consideration, the Civeo Board has unanimously determined that the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are advisable and in the best interests of Civeo and its shareholders. The Civeo Board unanimously recommends that Civeo shareholders vote “FOR” the share issuance proposal at the special meeting.

Record Date, Quorum, Voting Requirements and Outstanding Shares

The record date for determining persons entitled to receive notice of and vote at the special meeting is [            ]. Only shareholders as of the close of business on the record date are entitled to receive notice of and vote at the special meeting, or any adjournment or postponement thereof, in the manner and subject to the procedures described in this proxy statement. The presence of shareholders, in person or by proxy, holding at least a majority of the outstanding Common Shares will be required to establish a quorum. The shareholders present in person or by proxy at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Abstentions will be counted as present for purposes of determining whether there is a quorum.

The affirmative vote of the holders of a majority of the Common Shares present in person or represented by proxy and entitled to vote at the special meeting, assuming a quorum is present, is required for the approval of the share issuance proposal. Votes cast by proxy or in person at the special meeting will be tabulated by the election inspectors appointed for the special meeting and who will determine whether a quorum is present. The election inspectors will treat abstentions as shares that are present for purposes of determining the presence of a

 

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quorum. Broker non-votes (i.e., shares held by a broker or nominee that are represented at the special meeting, but with respect to which such broker or nominee is not instructed to vote on a particular proposal and does not have discretionary voting power) will not be considered present for quorum purposes and will not be entitled to vote on the share issuance proposal. Abstentions will be counted towards the tabulations of votes cast on the share issuance proposal and will have the same effect as negative votes, whereas broker non-votes will not be counted for purposes of determining whether the proposal has been approved and will not have the effect of negative votes.

At the close of business on the record date, [            ] Common Shares were issued and outstanding.

Each shareholder is entitled to one vote per Common Share held on all matters to come before the special meeting. Common Shares are the only securities of Civeo which will have voting rights at the special meeting.

Voting by Civeo’s Directors and Executive Officers

As of the close of business on the record date for the special meeting, directors and executive officers of Civeo and their affiliates were entitled to vote [            ] Common Shares, or approximately [    ]% of the Common Shares outstanding. Civeo currently expects that Civeo’s directors and executive officers will vote their shares in favor of the share issuance proposal, although none of them has entered into any agreement obligating them to do so.

Voting by Proxy

Registered shareholders of Civeo as of the close of business on the record date for the special meeting may vote in person by attending the special meeting or may authorize a proxy to vote by:

 

    accessing the Internet website specified on the proxy card;

 

    calling the toll-free number specified on the proxy card; or

 

    signing and returning the proxy card in the postage-paid envelope provided.

A proxy card is being sent with this proxy statement to each shareholder of record as of the record date for the special meeting.

For shares held in “street name” through a stock brokerage account or through a bank or other nominee, holders should follow the voting instructions provided by the broker, bank or other nominee.

Revocation of Proxies

In addition to revocation in any other manner permitted by law, a Civeo shareholder can revoke its proxy in one of the following ways:

 

    filing a written revocation with the Corporate Secretary prior to the voting of such proxy;

 

    giving a duly executed proxy bearing a later date; or

 

    attending the special meeting and voting in person.

Attendance at the special meeting will not itself revoke a shareholder’s proxy.

If a Civeo shareholder has instructed its broker to vote its shares, such shareholder must follow the broker’s procedure to change those instructions.

 

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Solicitation of Proxies

Proxies are being solicited by the Civeo Board for use at the special meeting and any adjournment or postponement thereof. Civeo is paying the costs of soliciting proxies. Upon request, Civeo will reimburse brokers, banks, trusts and other nominees for reasonable expenses incurred by them in forwarding the proxy materials to beneficial owners of Common Shares.

In addition to soliciting proxies by mail, the Civeo Board, Civeo’s officers and employees, or its transfer agent, may solicit proxies on Civeo’s behalf, personally or by telephone, and Civeo has engaged a proxy solicitor to solicit proxies on its behalf by telephone and by other means. Civeo expects the cost of Okapi Partners LLC, its proxy solicitor, to be approximately $10,000. Computershare, Civeo’s transfer agent, will serve as the inspector of election for the special meeting.

 

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THE ACQUISITION

This section and the section entitled “The Purchase Agreement” describe the background of the Acquisition, including the Purchase Agreement. While Civeo believes that these sections cover the material terms of the Acquisition and the Purchase Agreement, they may not contain all of the information that is important to you. For a more complete understanding of the Acquisition and the Purchase Agreement, you should read carefully this entire proxy statement, including the attached Annexes, and the other documents to which you are referred herein. See the section entitled “Additional Information.”

Background of the Acquisition

The senior management of Civeo and the Civeo Board regularly review strategic opportunities to maximize shareholder value and further Civeo’s strategic and operational objectives.

On May 29, 2017, a representative of Sequeira Partners, Inc. (“Sequeira”), financial advisor to Noralta, contacted Bradley J. Dodson, Civeo’s Chief Executive Officer, to advise Civeo that Noralta was exploring a possible sale and had engaged Sequeira in connection with its sale process. On June 8, 2017, Noralta delivered a signed nondisclosure agreement to Civeo, which agreement was accepted and agreed by Civeo on June 13, 2017. Following its execution, Noralta began to exchange non-public information with Civeo, and the parties conducted due diligence through the signing of the definitive transaction documents on November 26, 2017.

On June 14, 2017, members of Noralta management and representatives of Sequeira met with members of Civeo management in Denver, Colorado, to introduce Noralta’s business and discuss Noralta’s anticipated sale process.

On June 19, 2017, Civeo engaged Bennett Jones LLP (“Bennett Jones”) to assist Civeo as Canadian counsel in connection with Civeo’s proposed acquisition of Noralta.

On July 20, 2017, members of Civeo management and representatives of Lazard, financial advisor to Civeo, met with members of Noralta management and representatives of Sequeira in Houston, Texas. At the meeting, the participants discussed, among other things, Noralta’s management team, company history, lodge overview, operating model and financial performance, and the merits of an acquisition of Noralta by Civeo, including potential synergies.

On July 31, 2017, the members of the Finance & Investment Committee of the Civeo Board, comprised of C. Ronald Blankenship, Martin A. Lambert and Timothy Wall, held a meeting of the Finance & Investment Committee at which Richard A. Navarre, Constance B. Moore and Charles Szalkowski, who are members of the Civeo Board, members of Civeo management, and representatives of Lazard also were present. At the meeting, Civeo management discussed the proposed acquisition of Noralta by Civeo, and Civeo management and representatives of Lazard discussed the current status of the proposed acquisition. After discussion, the members of the Finance & Investment Committee determined that Civeo should deliver a non-binding indication of interest to Noralta.

On August 2, 2017, Civeo contacted Gibson, Dunn & Crutcher LLP (“Gibson Dunn”), regular outside counsel to Civeo, to assist Civeo in connection with Civeo’s proposed acquisition of Noralta.

On August 4, 2017, Civeo delivered an initial non-binding indication of interest to Sequeira. The indication of interest included preliminary terms for Civeo’s proposed acquisition of Noralta, including total consideration in the range of C$350 million to C$400 million on a cash-free, debt-free basis. The indication of interest provided that the consideration would be paid in a combination of Common Shares and cash. The indication of interest also provided that Lance Torgerson, the Chairman of Noralta, or an individual nominated by him who is reasonably acceptable to Civeo, would be offered a Class 1 board seat on the Civeo Board.

 

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On August 11, 2017, representatives of Sequeira, on behalf of Noralta, delivered to Civeo a revised proposal for the proposed acquisition, which included a purchase price of C$480 million, payable C$87.5 million in Common Shares, C$117.5 million in convertible notes or convertible preferred shares of Civeo, and C$275 million in cash.

On August 22, 2017, the Civeo Board convened a regular meeting to discuss the potential acquisition of Noralta and to receive updates on various other matters. Members of Civeo management and representatives of Lazard also participated in the meeting. Representatives of Lazard updated the Civeo Board regarding the discussions between Civeo and Noralta, including the August 11 th proposal from Noralta. After discussion, the Civeo Board requested management to prepare a term sheet for the Civeo Board to review in connection with submitting a counteroffer to Noralta’s August 11 th proposal. Civeo management subsequently provided the Civeo Board with a draft of the proposed second non-binding indication of interest for its review, which the Civeo Board determined should be sent to Sequeira.

On August 25, 2017, Civeo delivered a second non-binding indication of interest to Sequeira. The second indication of interest included revised preliminary terms for Civeo’s proposed acquisition of Noralta, including total consideration of C$415 million on a cash-free, debt-free basis. The second indication of interest provided that the consideration would be paid in C$87.5 million of Common Shares, C$118.0 million of convertible preferred shares of Civeo and C$209.5 million of cash. The second indication of interest included an exclusivity agreement pursuant to which Noralta would agree to exclusively negotiate with Civeo regarding a potential acquisition until November 30, 2017. The second indication of interest continued to include a Class 1 board seat for Mr. Torgerson or his nominee.

On August 28, 2017, representatives of Sequeira, on behalf of Noralta, responded to the second indication of interest. The revised proposal from Sequeira included a proposed purchase price of C$425 million, payable C$92.5 million in Common Shares, C$118.0 million in convertible preferred shares of Civeo, and C$214.5 million in cash. The revised proposal further included a request that the sellers be permitted to designate two members of the Civeo Board.

On August 30, 2017, Civeo delivered a third non-binding indication of interest to Sequeira. The third indication of interest included revised terms for Civeo’s proposed acquisition of Noralta, including total consideration of C$420 million on a cash-free, debt-free basis. The third indication of interest provided that the consideration would be paid in C$87.5 million of Common Shares, C$123.0 million of convertible preferred shares of Civeo and C$209.5 million of cash. The third indication of interest continued to include a Class 1 board seat for Mr. Torgerson or his nominee. The indication of interest reiterated the need for an exclusive negotiating period between Civeo and Noralta extending until November 30, 2017. On September 1, 2017, Corey Smith, Noralta’s President and Chief Executive Officer, executed the third indication of interest, agreeing to exclusively negotiate with Civeo until November 30, 2017.

On September 13, 2017, members of Civeo management met with members of Noralta management and representatives of Sequeira in Edmonton, Alberta, to discuss the financial and other disclosures regarding Noralta that would be required to be included in Civeo’s filings with the SEC, including a proxy statement of Civeo, in the event the parties decided to proceed with the proposed acquisition. The parties had meetings scheduled weekly to discuss progress on these disclosure matters.

On October 3, 2017, Noralta and Civeo entered into a mutual nondisclosure agreement. Following its execution, Civeo began to exchange non-public information with Noralta as part of the ongoing due diligence process.

On October 4, 2017, Bennett Jones, at the direction of Civeo, sent the initial draft of the Purchase Agreement to representatives of Dentons Canada LLP (“Dentons Canada”), Canadian counsel to Noralta.

 

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On October 6, 2017, Civeo and Lazard entered into an engagement letter formalizing the terms of Lazard’s engagement as Civeo’s financial advisor with respect to the proposed acquisition of Noralta.

On October 11, 2017, Civeo sent to Noralta the initial draft of the Registration Rights Agreement and a proposed amendment to Civeo’s Articles establishing the terms of the convertible preferred shares of Civeo to be issued in connection with the proposed acquisition.

On October 12, 2017, representatives of Dentons Canada sent a revised draft of the Purchase Agreement to representatives of Bennett Jones. The revised draft, among other things, modified the indemnification provisions, including the limitations on the sellers’ indemnification obligations, reduced the size of the escrow, and modified the purchase price adjustment mechanics.

Also on October 12, 2017, members of Civeo and Noralta management met with representatives of the Fort McKay First Nation, Noralta’s partner in its Dene Koe joint venture, to discuss the proposed acquisition and the potential impact of the proposed acquisition on the joint venture.

On October 20, 2017, members of Civeo management met with members of Noralta management in Calgary, Alberta to negotiate the terms of the Purchase Agreement and the Registration Rights Agreement. Following the meeting, Civeo instructed representatives of Gibson Dunn and Bennett Jones to revise the transaction documents to reflect the discussions between Civeo and Noralta.

From October 23, 2017 to November 26, 2017, Bennett Jones and Gibson Dunn, on behalf of Civeo, and Dentons Canada and Dentons US LLP (collectively, “Dentons”), U.S. counsel to Noralta, on behalf of Noralta, engaged in a number of conversations regarding, and exchanged drafts of, the transaction agreements, including the Purchase Agreement, the schedules and exhibits to the Purchase Agreement, the Registration Rights Agreement and the terms of the convertible preferred shares of Civeo to be issued in the proposed acquisition.

On October 25, 2017, the Civeo Board convened a regular meeting to discuss the potential acquisition of Noralta and to receive updates on various other matters. Members of Civeo management and representatives of Gibson Dunn, Bennett Jones and Lazard also were present at the meeting. Members of Civeo management updated the Civeo Board on the status of discussions with Noralta regarding the proposed acquisition. Representatives of Bennett Jones discussed the regulatory approvals that would be required in connection with the proposed acquisition, and representatives of Gibson Dunn discussed the filings that Civeo would be required to make with the SEC in connection with the proposed acquisition.

On November 6, 2017, members of Civeo management, members of Noralta management, and representatives of Bennett Jones, Gibson Dunn, Dentons, Sequeira and Lazard held a telephonic meeting to discuss outstanding items in the Purchase Agreement, including, among other things, the limitations on the sellers’ obligation to indemnify Civeo. Civeo management, Noralta management and representatives of Sequeira had a subsequent telephonic meeting on November 7, 2017 to further discuss the proposed limitations on the sellers’ indemnification obligations, including the potential for Civeo to purchase a representation and warranty insurance policy and the scope of such coverage. At the meeting, members of Civeo management requested that the sellers bear the cost of any such insurance policy.

On November 9, 2017, members of the Civeo Board and Civeo management met with members of Noralta management and Lance Torgerson in Denver, Colorado. The parties discussed, among other things, Noralta’s material contracts and operations, including Noralta’s existing joint ventures, and the communications strategy for announcing the proposed acquisition if definitive transaction agreements were signed. In addition, the parties discussed the ability of the sellers to designate a member of the Civeo Board, and Mr. Torgerson indicated that he did not intend to seek a board seat but intended to designate a nominee for consideration.

On November 13, 2017, the Civeo Board convened a special meeting to discuss the potential acquisition of Noralta and to receive updates on various other matters. Members of Civeo management and representatives of

 

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Lazard also were present at the meeting. Members of Civeo management updated the board on the status of the proposed acquisition and reviewed a summary of the key transaction terms, the status of the transaction documentation, and Civeo’s ongoing due diligence process, including due diligence related to Noralta’s material contracts. A question and answer session followed, during which the Civeo Board discussed the matters presented and asked questions of Civeo management and representatives of Lazard regarding the proposed acquisition. Following discussion, the Civeo Board instructed management to propose having a portion of the consideration payable in the proposed acquisition contingent upon the continuity of a specified material contract of Noralta to address the risk associated with potential early termination of that contract.

On November 14, 2017, members of Civeo management and representatives of Sequeira held a telephonic meeting to discuss Civeo’s proposal regarding contingent consideration.

On November 17, 2017, members of Civeo and Noralta management and representatives of Gibson Dunn and Dentons held a telephonic meeting to discuss outstanding items in the Registration Rights Agreement, including, among other things, the addition of further restrictions on Civeo’s ability to grant registration rights that are inconsistent with those set forth in the Registration Rights Agreement.

On November 20, 2017, members of Civeo and Noralta management met with representatives of certain customers of Noralta to discuss the proposed acquisition.

On November 21, 2017, the Civeo Board held a telephonic meeting at which members of Civeo management and representatives of Gibson Dunn, Bennett Jones and Lazard also were present. Civeo management reviewed the strategic rationale for the proposed acquisition, discussed the status of due diligence and the transaction documents, and described the key financial considerations associated with the indemnification provisions of the Purchase Agreement and the related representation and warranty insurance policy to be obtained by Civeo. Civeo management also described the November 20 th meetings with certain Noralta customers to discuss the proposed acquisition. Representatives of Lazard provided the Civeo Board with financial and market perspectives regarding the proposed acquisition, including valuation considerations surrounding the convertible preferred shares to be issued in the proposed acquisition, and described its preliminary financial analyses regarding the consideration expected to be paid by Civeo in the proposed acquisition. Throughout the discussion, members of Civeo management and representatives of Lazard answered questions from the members of the Civeo Board.

On November 26, 2017, the Civeo Board held a telephonic meeting at which members of management and representatives of Gibson Dunn, Bennett Jones and Lazard also were present. Members of Civeo management reviewed with the Civeo Board the financial terms of the Acquisition, including the principal benefits of the Acquisition and the terms of the non-competition agreements to be entered into with Noralta’s shareholders and management. Representatives of Lazard provided the Civeo Board with updated financial and market perspectives regarding the Acquisition, including an update to the valuation of the Preferred Shares to reflect discussions with the Civeo Board at the November 21 st board meeting. Representatives of Lazard then presented Lazard’s financial analyses regarding the consideration to be paid by Civeo in the Acquisition and delivered its oral opinion to the Civeo Board, which was confirmed by delivery of a written opinion dated November 26, 2017, that, as of such date and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the consideration to be paid by Civeo for the Acquisition was fair, from a financial point of view, to Civeo. Representatives of Bennett Jones and Gibson Dunn then reviewed the key terms of the Purchase Agreement, the Registration Rights Agreement and the amendment to Civeo’s Articles to establish the terms of the Preferred Shares. Following those presentations and discussions, the Civeo Board unanimously determined that it was advisable and in the best interests of Civeo and its shareholders to enter into the Purchase Agreement and the transactions contemplated by the Purchase Agreement, and the Civeo Board unanimously approved the Acquisition and the Purchase Agreement and recommended that Civeo’s shareholders approve the issuance of Common Shares and Preferred Shares in connection with the Acquisition.

 

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Later on November 26, 2017, the Purchase Agreement was finalized and was executed and delivered by Civeo and the other parties thereto. During the remainder of the day, representatives of Civeo and Noralta discussed communications to be made in connection with the announcement of the Acquisition. The execution of the Purchase Agreement was publicly announced on the morning of November 27, 2017.

Reasons for the Acquisition

By vote at a meeting held on November 26, 2017, the Civeo Board unanimously determined that the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are advisable and in the best interests of Civeo and its shareholders. The Civeo Board unanimously recommends that Civeo shareholders vote “FOR” the share issuance proposal at the special meeting.

In evaluating the Acquisition and the Purchase Agreement, the Civeo Board consulted with Civeo’s management and financial and legal advisors and, in reaching its decision to approve the Acquisition and enter into the Purchase Agreement, the Civeo Board considered a number of factors, including the following material factors which the Civeo Board viewed as generally supporting its decision to approve the Acquisition and the Purchase Agreement:

 

    Strengthens Workforce Solutions Portfolio: Together, the combined company will better support the success of its customers over the life of their projects, as it provides innovative home-to-home workforce accommodation solutions across the Canadian oil sands region.

 

    Accelerates Strategic Priorities:  The Acquisition furthers Civeo’s strategic objectives of servicing operator-owned accommodation facilities and enhancing the quality and scope of its service offerings, including investing in customer-facing technologies, and focusing on disciplined growth opportunities.

 

    Generates Significant Operating Cash Flow and Strengthens the Pro Forma Balance Sheet:  In addition to stronger revenue visibility, the combined company would have generated significantly more operating cash flow than Civeo on a standalone basis during the twelve month period ended September 30, 2017 and would reduce Civeo’s pro forma leverage, strengthening the company’s balance sheet.

 

    Solidifies Operations-Focused Revenue: Noralta’s two largest contracts support operations-focused workforces that service large developed oil sands producers which will have ongoing room needs even beyond the contract terms already in place.

 

    Enhances First Nations Relationships:  Noralta’s well established First Nations relationships further enhance Civeo’s profile as a leader in partnering with First Nations throughout Western Canada for the mutual benefit of those groups and the combined company.

 

    Value Creation Through Synergies: The Acquisition will enable Civeo’s shareholders to participate in the value creation potential of the combined company, including expected annual synergies of C$10 million by 2019, primarily related to operational and corporate efficiencies.

 

    Continued Ownership of Civeo Shareholders: Based on the outstanding Common Shares as of November 26, 2017, current Civeo shareholders will own approximately 68% of the outstanding Common Shares on an as converted and fully diluted basis after the Acquisition.

 

    Regulatory and Shareholder Approvals: The Civeo Board considered the regulatory and shareholder approvals required in connection with the Acquisition and the probability that those approvals would be obtained.

 

    Terms of the Purchase Agreement and the Registration Rights Agreement: The Civeo Board considered the terms of the Purchase Agreement, the Registration Rights Agreement, and the other agreements relating to the Acquisition, including the respective representations, warranties, covenants and termination and indemnification rights of the parties, and the fact that the terms of such agreements are favorable to Civeo’s shareholders.

 

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    Lazard Opinion: The Civeo Board considered the financial analyses and opinion of Lazard delivered orally to the Civeo Board on November 26, 2017 and subsequently confirmed in writing, to the effect that, as of the date of its opinion and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the consideration payable in the Acquisition was fair, from a financial point of view, to Civeo. For further discussion of Lazard’s opinion, see “– Opinion of Civeo’s Financial Advisor” below.

In the course of its deliberations, the Civeo Board also considered a variety of risks and other potentially negative factors concerning the Acquisition, including the following:

 

    risks associated with early termination or non-renewal of two significant Noralta contracts beyond their primary term, and the potential for a decrease in demand under such contracts below Civeo’s expectations;

 

    that, while the Acquisition is expected to be completed, there is no assurance that all conditions to the parties’ obligations to complete the Acquisition will be satisfied or waived, and as a result, it is possible that the Acquisition might not be completed even if Civeo’s shareholders approve the share issuance proposal;

 

    the risks and costs to Civeo if the Acquisition is delayed or does not occur at all, including the potential negative impact on Civeo’s ability to retain key employees, the diversion of Civeo management and employee attention and the potential disruptive effects on Civeo’s day-to-day operations and Civeo’s relationships with third parties;

 

    the substantial costs to be incurred in connection with the Acquisition, including the costs of integrating the business of Noralta with Civeo and the transaction costs to be incurred in connection with the Acquisition;

 

    the potential earnings dilution to Civeo shareholders following the closing of the Acquisition;

 

    the potential risks associated with achieving anticipated synergies and successfully integrating Noralta’s business, operations and workforce with those of Civeo;

 

    the fact that the combined company might not achieve its projected financial results, including as a result of deterioration in commodity prices;

 

    the potential that the fixed number of Common Shares and Preferred Shares to be issued as consideration under the Purchase Agreement could result in Civeo paying more for Noralta than had been anticipated by Civeo should the value of the Common Shares increase from the date of the execution of the Purchase Agreement;

 

    the potential negative effects on holders of Common Shares of the special rights of the Preferred Shares to be issued in the Acquisition, including that the Preferred Shares rank senior to the Common Shares with respect to dividend rights and rights upon the liquidation, dissolution or winding-up of Civeo up to the amount of the liquidation preference and accrued and unpaid dividends;

 

    that the Acquisition would further increase Civeo’s concentration in the oil sands region of Alberta, Canada, and its exposure to the political, regulatory, environmental, labor, climate or natural disaster events and developments affecting the region;

 

    that the Acquisition would increase Civeo’s customer concentration and related risks; and

 

    other risks of the type and nature described under the section of this proxy statement entitled “Risk Factors.”

The foregoing discussion of the information and factors considered by the Civeo Board is not meant to be exhaustive, but includes the material information, factors and analyses considered by the Civeo Board in reaching its conclusions and recommendations in relation to the Acquisition. The members of the Civeo Board evaluated the various factors listed above in light of their knowledge of the business and the financial condition

 

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and prospects of Civeo, taking into account the advice of Civeo’s financial and legal advisors. In light of the variety of factors and amount of information that the Civeo Board considered, the members of the Civeo Board did not find it practicable to provide a specific assessment of, quantify or otherwise assign any relative weights to, the factors considered in determining their recommendations. Rather, the recommendations of the Civeo Board were made after considering the totality of the information and factors involved. Individual members of the Civeo Board may have ascribed different weight to different factors.

The foregoing discussion of the information and reasons considered by the Civeo Board is forward-looking in nature. This information should be read in light of the reasons described under “Cautionary Statement Regarding Forward-Looking Statements.”

Unaudited Financial Projections of Civeo

Civeo does not as a matter of course publicly disclose forecasts as to future earnings and other financial performance beyond the current fiscal year, due to the unpredictability of the underlying assumptions and estimates. However, in connection with the due diligence review related to the Acquisition, Civeo’s management provided to Lazard, in connection with Lazard’s evaluation of the fairness, from a financial point of view, of the consideration payable in the Acquisition, non-public, internal financial forecasts regarding each of Civeo’s and Noralta’s anticipated future operations for the four fiscal years ending December 31, 2017 through 2020. The Civeo Board considered these internal forecasts for purposes of evaluating the Acquisition, and Civeo has included a summary of these internal forecasts below to give Civeo shareholders and investors access to certain non-public information that was furnished to its financial advisor.

Civeo did not prepare these internal financial forecasts with a view toward public disclosure, nor were they prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts, or GAAP. Civeo is not including the summary of these internal financial forecasts below to influence your decision whether to vote for the share issuance proposal and these internal forecasts do not give effect to the Acquisition. Neither Ernst & Young LLP (Civeo’s independent accounting firm), PricewaterhouseCoopers LLP (Noralta’s independent accounting firm) nor any other independent accounting firm has examined, compiled or otherwise performed any procedures with respect to the prospective financial information contained in these financial forecasts and, accordingly, neither Ernst & Young LLP, PricewaterhouseCoopers LLP nor any other independent accounting firm has expressed any opinion or given any other form of assurance with respect thereto and no independent accounting firm assumes any responsibility for the prospective financial information. The Ernst & Young LLP report incorporated by reference in this proxy statement and the PricewaterhouseCoopers LLP report attached to this proxy statement relate to the historical financial information of Civeo and Noralta, respectively. Those reports do not extend to the financial forecasts and should not be read to do so.

Civeo based these internal financial forecasts on numerous variables and assumptions (including, but not limited to, those related to industry performance and competition and general business, economic, market and financial conditions) that are inherently subjective and uncertain and are beyond the control of Civeo’s management. Important factors that may affect actual results and cause these internal financial forecasts to not be achieved include, but are not limited to, risks and uncertainties relating to Civeo’s business (including its ability to achieve strategic goals, objectives and targets over applicable periods), industry performance, general business and economic conditions and other factors described in the “Risk Factors” section of Civeo’s SEC filings incorporated by reference into this proxy statement as well as factors described in the “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” sections of this proxy statement. These internal financial forecasts also reflect assumptions as to certain business assumptions that are subject to change. As a result, actual results may differ materially from those contained in these internal financial forecasts. Accordingly, there can be no assurance that the forecasted results summarized below will be realized.

You should not regard the inclusion of a summary of these internal financial forecasts in this proxy statement as an indication that any of Civeo, Noralta or their respective affiliates, advisors or representatives

 

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considered these internal financial forecasts to be predictive of actual future events, and these internal financial forecasts should not be relied upon as such. Civeo, Noralta and their respective affiliates, advisors, officers, directors, partners and representatives can give you no assurance that projected results will be achieved and actual results could differ materially. Further, the inclusion of the financial forecasts in this proxy statement does not constitute an admission or representation by Civeo or Noralta that this information is material. Civeo, Noralta and their respective affiliates, advisors, officers, directors, partners and representatives undertake no obligation to update or otherwise revise or reconcile these internal financial forecasts. Civeo, its affiliates, advisors, officers, directors, partners or representatives make no representation regarding Civeo’s ultimate performance compared to the information contained in these internal financial forecasts or that the forecasted results will be achieved. Further, Civeo has made no representation to Noralta, in the Purchase Agreement or otherwise, concerning these internal financial forecasts. Civeo urges all shareholders to review Civeo’s SEC filings for a description of Civeo’s reported financial results.

Prospective financial information regarding Noralta

In connection with Civeo’s consideration of the Acquisition, Civeo management prepared unaudited prospective financial information for Noralta based on Civeo’s assumptions regarding current and prospective market conditions and its due diligence investigation of Noralta. The Civeo management projections of Noralta also reflect Civeo management’s expectations regarding Noralta’s future prospects of occupancy, expected margins and revenue recognition. Although Noralta’s fiscal year ends May 31, the Civeo management projections of Noralta were prepared on the basis of a December 31 fiscal year-end to match Civeo’s fiscal year. The following table presents selected unaudited prospective financial information for Noralta that Civeo management reviewed with the Civeo Board on November 26, 2017 and provided to Lazard for use in the financial analysis prepared by Lazard and summarized below in the section entitled “  Opinion of Civeo’s Financial Advisor” of this proxy statement.

 

     Management Projections  
(In millions of US dollars)    2017E      2018E      2019E      2020E  

Total Revenue

   $ 126      $ 121      $ 127      $ 129  

EBITDA (1)

     54        49        53        53  

Unlevered Free Cash Flow (2)

     N/A        30        40        40  

 

(1) EBITDA is calculated as earnings before interest, income taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure, as it excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in financial statements. EBITDA is not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. EBITDA should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity.
(2) Unlevered Free Cash Flow is defined as cash flows provided by operating activities less cash taxes less capital expenditures plus changes in net working capital, if any, plus proceeds from asset sales. This measure is not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. Unlevered Free Cash Flow should not be considered in isolation or as a substitute for cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity.

 

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Prospective financial information regarding Civeo

The following table presents selected unaudited prospective financial information for Civeo that Civeo management reviewed with the Civeo Board on November 26, 2017 and provided to Lazard for use in the financial analysis prepared by Lazard and summarized below in the section entitled “– Opinion of Civeo’s Financial Advisor” of this proxy statement.

 

     Management Projections  
(In millions of US dollars)    2017E      2018E      2019E      2020E  

Total Revenue

   $ 378      $ 408      $ 468      $ 550  

EBITDA (1)

     59        59        73        97  

Unlevered Free Cash Flow (2)

     N/A        49        53        73  

 

(1) EBITDA is calculated as earnings before interest, income taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure, as it excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in financial statements. EBITDA is not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. EBITDA should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity.
(2) Unlevered Free Cash Flow is defined as cash flows provided by operating activities less cash taxes less capital expenditures plus changes in net working capital, if any, plus proceeds from asset sales. This measure is not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. Unlevered Free Cash Flow should not be considered in isolation or as a substitute for cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity.

Opinion of Civeo’s Financial Advisor

Civeo has retained Lazard to act as its financial advisor in connection with the Acquisition. As part of this engagement, Civeo requested that Lazard evaluate the fairness, from a financial point of view, to Civeo of the consideration payable in the Acquisition. At a meeting of the Civeo Board held to evaluate the Acquisition on November 26, 2017, Lazard rendered an oral opinion to the Civeo Board, subsequently confirmed in writing, to the effect that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth in Lazard’s written opinion, the consideration payable in the Acquisition was fair, from a financial point of view, to Civeo.

The full text of Lazard’s written opinion, dated November 26, 2017, which sets forth the assumptions made, procedures followed, factors considered and qualifications and limitations on the review undertaken by Lazard in connection with its opinion, is attached as Annex D to this proxy statement and is incorporated herein by reference. We encourage you to read Lazard’s opinion carefully and in its entirety.

Lazard’s opinion was provided for the use and benefit of the Civeo Board (in its capacity as such) in its evaluation of the Acquisition, and addressed only the fairness, as of the date of the opinion, from a financial point of view, to Civeo of the consideration payable in the Acquisition. Lazard’s opinion is not intended to and does not constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the share issuance proposal.

Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of Lazard’s opinion. Lazard assumed no

 

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responsibility for updating or revising its opinion based on circumstances or events occurring after the date of Lazard’s opinion. Lazard’s opinion did not express any opinion as to the price at which Civeo Common Shares or Preferred Shares may trade at any time subsequent to the announcement of the Acquisition. Lazard assumed, with the consent of Civeo, a constant exchange rate of $1.25 CAD/USD for purposes of analyzing the financial projections. Lazard further assumed, with the consent of Civeo, that adjustments (if any) to the consideration payable in the Acquisition will not be material in any respect to its analyses or opinion. Lazard’s opinion does not address the relative merits of the Acquisition as compared to any other transaction or business strategy in which Civeo might engage or the merits of the underlying decision by Civeo to engage in the Acquisition.

In connection with its opinion, Lazard:

 

    Reviewed the financial terms and conditions of the Purchase Agreement;

 

    Reviewed certain historical business and financial information relating to Noralta and Civeo;

 

    Reviewed various financial forecasts and other data provided to Lazard by Noralta relating to the business of Noralta, financial forecasts and other data provided to Lazard by Civeo relating to the business of Noralta, financial forecasts and other data provided to Lazard by Civeo relating to the business of Civeo and the projected synergies and other benefits, including the amount and timing thereof, anticipated by the management of Civeo to be realized from the Acquisition;

 

    Held discussions with members of the senior management of Civeo with respect to the businesses and prospects of Noralta and Civeo, and with respect to the projected synergies and other benefits anticipated by the management of Civeo to be realized from the Acquisition;

 

    Held discussions with members of the senior management of Noralta with respect to the businesses and prospects of Noralta;

 

    Reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally relevant in evaluating the businesses of Noralta and Civeo, respectively;

 

    Reviewed the financial terms of certain business transactions involving companies in lines of business Lazard believed to be generally relevant in evaluating the businesses of Noralta and Civeo, respectively;

 

    Reviewed historical prices and trading volumes of Civeo Common Shares;

 

    Reviewed the terms and conditions of the Preferred Shares;

 

    Reviewed the potential pro forma financial impact of the Acquisition on Civeo based on the financial forecasts provided by Civeo and referred to above relating to Noralta and Civeo and the projected synergies and other benefits anticipated by the management of Civeo to be realized from the Acquisition; and

 

    Conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.

Lazard assumed and relied upon the accuracy and completeness of the foregoing information, without independent verification of such information. Lazard did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of Noralta or Civeo or concerning the solvency or fair value of Noralta or Civeo, and was not furnished with any such valuation or appraisal. At the direction of Civeo, for purposes of its analysis of Noralta, Lazard utilized the financial forecasts provided to Lazard by Civeo relating to the business of Noralta. With respect to the financial forecasts utilized in Lazard’s analyses, including those related to projected synergies and other benefits anticipated by the management of Civeo to be realized from the Acquisition, Lazard assumed, with the consent of Civeo, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments as to the future financial performance of Noralta and Civeo, respectively, and such synergies and other benefits. In addition, Lazard assumed, with the consent of Civeo, that such financial forecasts and projected synergies and other benefits will be realized in the amounts and

 

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at the times contemplated thereby. In this regard, Lazard relied upon, with Civeo’s consent, Civeo’s management’s assessment of the ability of Noralta and Civeo to retain in place Noralta’s long-term contracts. Lazard assumed no responsibility for and expressed no view as to any such forecasts or the assumptions on which they are based.

For purposes of its analysis, Lazard assumed that the total consideration to be paid to the sellers by Civeo pursuant to the terms of the Purchase Agreement would consist of the following: (i) $164,856,783 in cash; (ii) 32,790,868 Common Shares (13,491,100 of which will be placed into escrow upon the closing of the Acquisition, to be released in three equal installments in 2021, 2022 and 2023 contingent on the achievement of certain milestones); and (iii) 9,679 Preferred Shares, which, as acknowledged by Civeo, Lazard valued at approximately 57% of face value as of November 26, 2017. In rendering its opinion, Lazard assumed, with the consent of Civeo, that the Acquisition will be consummated on the terms described in the Purchase Agreement and the Registration Rights Agreement, without any waiver or modification of any material terms or conditions. Representatives of Civeo advised Lazard, and Lazard assumed, that the Purchase Agreement and the Registration Rights Agreement, when executed, would conform to the drafts reviewed by Lazard in all material respects. Lazard noted that, pursuant to the Registration Rights Agreement, the significant shareholders of Noralta will be subject to certain limitations with respect to the Common Shares received in the Acquisition, including certain limitations on the ability of such shareholders to transfer their Common Shares or to acquire additional Common Shares, to propose any acquisition of Civeo by such shareholders, or to seek to exercise any control or influence over the management of Civeo or the Civeo Board, as well as a requirement, in respect of any matter on which the shareholders of Civeo are voting, to vote any Common Shares in excess of 15% of the outstanding Common Shares in a manner that is proportionate to the manner in which all other Civeo Common Shares are voted on such matter. With respect to the payment of dividends on the Preferred Shares, Lazard assumed, at the direction of Civeo, that such dividends will be paid by a corresponding increase in the liquidation preference. Lazard was advised that prior (and as a condition) to the closing of the Acquisition, Noralta and its shareholders will effect certain pre-closing restructuring transactions. Lazard assumed, with the consent of Civeo, that the pre-closing restructuring transactions will not have any adverse impact upon the business, results of operations or financial condition of Noralta or the financial forecasts utilized in Lazard’s analyses, including those related to projected synergies and other benefits anticipated by the management of Civeo to be realized from the Acquisition. Lazard also assumed, with the consent of Civeo, that obtaining the necessary governmental, regulatory or third party approvals and consents for the Acquisition will not have an adverse effect on Civeo, Noralta or the Acquisition. Lazard did not express any opinion as to any tax or other consequences that might result from the Acquisition, nor does Lazard’s opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that Civeo obtained such advice as it deemed necessary from qualified professionals. Lazard expressed no view or opinion as to any terms or other aspects (other than the consideration payable in the Acquisition to the extent expressly specified in its opinion) of the Acquisition, including, without limitation, the form or structure of the Acquisition or any agreements or arrangements entered into in connection with, or contemplated by, the Acquisition, including but not limited to any adjustments to the consideration payable in the Acquisition and the terms of the Registration Rights Agreement. In addition, Lazard expressed no view or opinion as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the Acquisition, or class of such persons, relative to the consideration payable in the Acquisition or otherwise.

Summary of Lazard’s Financial Analyses

The following is a summary of the material financial analyses reviewed with the Civeo Board in connection with Lazard’s opinion, dated November 26, 2017. The summary of Lazard’s analyses and reviews provided below is not a complete description of the analyses and reviews underlying Lazard’s opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of analysis and review and the application of those methods to particular circumstances and, therefore, is not readily susceptible to summary description.

 

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In arriving at its opinion, Lazard did not draw, in isolation, conclusions from or with regard to any factor or analysis considered by it. Rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses. Considering selected portions of the analyses and reviews in the summary set forth below, without considering the analyses and reviews as a whole, could create an incomplete or misleading view of the analyses and reviews underlying Lazard’s opinion.

For purposes of its analyses and reviews, Lazard considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Civeo and Noralta. No company, business or transaction used in Lazard’s analyses and reviews as a comparison is identical to Civeo, Noralta or the Acquisition, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions used in Lazard’s analyses and reviews. The estimates contained in Lazard’s analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by Lazard’s analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses and reviews are inherently subject to substantial uncertainty.

The summary of the analyses and reviews provided below includes information presented in tabular format. In order to fully understand Lazard’s analyses and reviews, the tables must be read together with the full text of each summary. The tables alone do not constitute a complete description of Lazard’s analyses and reviews. Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Lazard’s analyses and reviews.

Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before November 26, 2017, and is not necessarily indicative of current market conditions.

Noralta Valuation

The following is a brief summary of the material financial and comparative analyses with respect to Noralta which Lazard deemed to be appropriate for this type of transaction and that were performed by Lazard in connection with rendering its opinion. As part of the analysis to consider fairness of the Acquisition, Lazard reviewed several valuation methodologies and metrics to evaluate the purchase price of Noralta’s equity, as follows.

Noralta Selected Comparable Companies Analysis

In performing its selected comparable companies analysis with respect to Noralta, Lazard reviewed and analyzed certain financial information, valuation multiples and market trading data relating to selected comparable publicly-traded accommodation companies with a significant presence in Canada (collectively, the “Noralta selected companies”) whose operations Lazard believed to be similar to the operations of Noralta’s accommodation business for purposes of this analysis. While the Noralta selected companies represent a mix of comparable public companies that encompass the primary business and attributes of Noralta, no company, independently or as part of a set, is identical to Noralta. The Noralta selected companies were as follows:

 

    Civeo

 

    Horizon North Logistics Inc.

 

    Black Diamond Group Ltd.

 

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For each of the Noralta selected companies, Lazard calculated and compared the ratio of such company’s enterprise value (calculated as the market capitalization of such company based on its closing share price as of November 17, 2017, plus debt, plus noncontrolling interest less cash) to such company’s calendar year 2017, 2018 and 2019 estimated earnings before interest, taxes, depreciation and amortization, referred to as EBITDA, as follows:

 

     EV/EBITDA  

Company

   2017E      2018E      2019E  

Civeo (management)

     9.0x        9.0x        7.2x  

Civeo (consensus)

     8.2x        7.8x        5.7x  

Horizon North Logistics Inc.

     9.3x        6.1x        5.4x  

Black Diamond Group Ltd.

     9.3x        6.9x        5.5x  

The financial information for each of the Noralta selected companies listed above and used by Lazard in its analysis was based on public filings, financial projections for Noralta provided by Civeo management and FactSet consensus estimates.

Based on its review of the Noralta selected companies and its experience and professional judgment Lazard then applied a reference range of multiples to Noralta’s business of 8.5x to 9.5x to estimated calendar year 2017 EBITDA, 6.0x to 8.0x to estimated 2018 EBITDA and 5.5x to 6.5x to estimated 2019 EBITDA, in each case based on financial projections for Noralta provided by Civeo management. Based on the foregoing, Lazard arrived at a range of implied enterprise values for Noralta as follows:

 

Year

   Reference Range      Estimated EBITDA      Implied Enterprise Value  

2017

     8.5x-9.5x      $ 54M      $ 460M-510M  

2018

     6.0x-8.0x      $ 49M      $ 295M-$390M  

2019

     5.5x-6.5x      $ 53M      $ 290M-$340M  

Noralta Discounted Cash Flow Analysis

Lazard performed a discounted cash flow analysis of Noralta to calculate the estimated net present value of  (1) the standalone unlevered, after-tax free cash flows that Noralta was projected to generate in calendar year 2018 through calendar year 2020, based on projections provided by the management of Civeo; and (2) the terminal value for Noralta. The terminal value for Noralta was calculated using terminal EBITDA multiples ranging from 5.5x to 6.5x, which were selected by Lazard using its professional judgment and expertise, utilizing historical and current enterprise value to EBITDA trading multiples calculated for the Noralta selected companies. The range of terminal EBITDA multiples for Noralta was then applied to estimated 2020 EBITDA for Noralta to obtain the terminal value for Noralta. The estimated future cash flow and the terminal value for Noralta were discounted to present value using discount rates ranging from 10.0% to 12.0%, which were based on Noralta’s weighted average cost of capital. Lazard took the sum of the present value ranges for Noralta’s future cash flows and terminal value to calculate a range of implied enterprise values from $300 million to $355 million.

Noralta Selected Precedent Transactions Analysis

Lazard reviewed and analyzed certain publicly available financial information for selected precedent merger and acquisition transactions from 2010 to 2017 involving companies in the accommodations and related services industry that Lazard believed, based on its experience with companies in the accommodations and related services industry, to be relevant for purposes of this analysis.

Although none of the selected precedent transactions or the companies party to such transactions are directly comparable to the Acquisition or to Noralta, the transactions were chosen because they involve targets that, for

 

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purposes of analysis, may be considered to operate in a similar industry as Noralta. The transactions reviewed were:

 

Date

  

Acquirer

  

Target

March 2017

   Black Diamond Group Ltd.    Britco LP

July 2016

   Horizon North Logistics Inc.    Empire Camp Equipment Ltd.

November 2011

   Hammond, Kennedy, Whitney & Company, Inc.    Royal Camp Services Ltd.

June 2011

   Clean Harbors, Inc.    Peak Energy Services Ltd.

December 2010

   Oil States International, Inc.    Mountain West Oilfield Service and Supplies, Inc.

Lazard reviewed, among other things, the enterprise value of the target, represented by the implied transaction value of each of the selected transactions, as a multiple of last twelve months (LTM) EBITDA of the target company in such transaction. Financial data of the selected transactions were based on public flings, FactSet and other publicly available information. The overall low to high estimated EBITDA multiples observed for the selected transactions were 3.4x to 5.6x.

Based on its review of the Noralta selected precedent transactions and its experience and professional judgment, Lazard selected reference ranges of 5.0x to 6.0x for enterprise value to LTM EBITDA. Lazard applied such range of multiples to Noralta’s LTM EBITDA of $57 million as of August 31, 2017. Based on the foregoing, Lazard estimated an implied enterprise value range for Noralta, as follows:

 

     Implied Enterprise Value Range  

Noralta

   $ 285 million to $340 million  

Civeo Valuation

Lazard also reviewed certain valuation methodologies and metrics, as summarized below, to evaluate the implied value of the per share stock consideration to be paid by Civeo as part of the Acquisition.

Civeo Comparable Public Companies Analysis

In performing its selected comparable companies analysis with respect to Civeo, Lazard reviewed and analyzed certain financial information, valuation multiples and market trading data relating to selected comparable publicly-traded Canadian accommodation companies (collectively, the “Civeo selected companies”) whose operations Lazard believed to be similar to the operations of Civeo’s accommodation business for purposes of this analysis. While the Civeo selected companies represent a mix of comparable public companies that encompass the primary business segment and attributes of Civeo, no company, independently or as part of a set, is identical to Civeo or its business. The Civeo selected companies were as follows:

 

    Horizon North Logistics Inc.

 

    Black Diamond Group Ltd.

For each of the Civeo selected companies, Lazard calculated and compared the ratio of such company’s enterprise value (calculated as the market capitalization of such company based on its closing share price as of November 17, 2017, plus debt, plus noncontrolling interest less cash) to such company’s calendar year 2017, 2018 and 2019 EBITDA, as follows:

 

     EV/EBITDA  

Company

   2017E      2018E      2019E  

Horizon North Logistics Inc.

     9.3x        6.1x        5.4x  

Black Diamond Group Ltd.

     9.3x        6.9x        5.5x  

 

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The financial information for each of the Civeo selected companies listed above and used by Lazard in its analysis was based on public filings, FactSet consensus estimates and other publicly available information.

Based on its review of the Civeo selected companies and its experience and professional judgment Lazard then applied a reference range of multiples to Civeo’s business of 9.0x to 10.0x to estimated calendar year 2017 EBITDA, 6.5x to 8.0x to estimated 2018 EBITDA and 5.5x to 7.0x to estimated 2019 EBITDA, in each case based on the Civeo management forecasts. Lazard then subtracted the book value of Civeo’s total debt minus cash and cash equivalents (referred to as “net debt for Civeo”), to arrive at a range of implied equity values for Civeo Common Shares of $1.95 to $2.40 based on estimated 2017 EBITDA, $0.85 to $1.50 based on estimated 2018 EBITDA and $1.00 to $1.80 based on estimated 2019 EBITDA.

Civeo Discounted Cash Flow Analysis

Lazard performed a discounted cash flow analysis of Civeo to calculate the estimated net present value of (1) the standalone unlevered, after-tax free cash flows that Civeo was projected to generate in calendar year 2018 through calendar year 2020, based on projections provided by the management of Civeo; and (2) the terminal value for Civeo. The terminal value for Civeo was calculated using terminal EBITDA multiples ranging from 6.0x to 7.0x, which were selected by Lazard using its professional judgment and expertise, utilizing historical and current enterprise value to EBITDA trading multiples calculated for Civeo as well as the Civeo selected companies. The range of terminal EBITDA multiples for Civeo was then applied to estimated 2020 EBITDA for Civeo to obtain the terminal value for Civeo. The estimated future cash flow and the terminal value for Civeo were discounted to present value using discount rates ranging from 10.0% to 11.5%, which were based on Civeo’s weighted average cost of capital. Lazard took the sum of the present value ranges for Civeo’s future cash flows and terminal value to calculate a range of implied enterprise values. Lazard then subtracted the net debt for Civeo, and calculated a range of implied per share equity value for Civeo of $2.25 to $2.95.

“Has-Gets” Analysis From the Perspective of the Civeo Shareholders

Utilizing the financial information described above and Civeo management estimates of operational and tax synergies, Lazard compared the stand-alone equity and per share values of Civeo to the pro forma equity and per share values of the combined company after giving effect to the transactions contemplated by the Purchase Agreement, including (i) the realization of operational synergies, (ii) the realization of tax synergies, (iii) incurrence of incremental net debt of $118 million and (iv) a 81%/19% ownership split of the combined company by former Civeo shareholders and former Noralta shareholders, respectively, on a basic share count basis ( i.e. , assuming that the Preferred Shares are not outstanding) and a 68%/32% ownership split of the combined company by former Civeo shareholders and former Noralta shareholders, respectively, on a diluted share count basis ( i.e. , assuming that the Preferred Shares are converted).

In order to estimate the value of the operational synergies, Lazard performed a discounted cash flow analysis to calculate the estimated net present value of: (i) annual incremental cost synergies of  $8-12 million, as estimated by Civeo management; (ii) the total costs of approximately $2 million to achieve such synergies; and (iii) terminal values based on terminal multiples of 5.0x to 6.0x. The synergy cash flows and terminal values were discounted to present value using discount rates ranging from 10.0% to 11.5%, which were based on Civeo’s weighted average cost of capital. Based on the foregoing, Lazard estimated the net present value of the operational synergies in a range of approximately $52 million to $77 million. For purposes of its comparison of the stand-alone per share value of Civeo to the pro forma per share value of the combined company, Lazard utilized the midpoint of the estimated net present values of the operational synergies, or $65 million.

For valuation purposes, Lazard assumed a range of $15 million to $25 million in tax synergies based on Civeo management forecasts. For purposes of its comparison of the stand-alone per share value of Civeo to the pro forma per share value of the combined company, Lazard utilized the midpoint of the estimated net present values of the tax synergies, or $20 million.

 

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With respect to the valuation of Noralta based on its discounted cash flow analysis, Lazard used the full enterprise value from its discounted cash flow analysis of $326 million, representing the midpoint of its analysis, with adjustment for net debt assumed. With respect to the valuation of Noralta based on its comparable companies analysis, Lazard used the full enterprise value from its comparable companies analysis of $343 million, representing the midpoint of its analysis, with adjustment for net debt assumed.

Lazard observed the following comparison of the stand-alone per share value of Civeo to the pro forma per share value of the combined company:

 

         “Has”
(based
on
midpoint
of range)
     Gets
(Including
Operational
and

Tax
Synergies)

(Basic)
     Percentage
Increase/
(Decrease)
From “Has”

(Basic)
    Gets
(Including
Operational
and

Tax
Synergies)

(Diluted)
     Percentage
Increase/

(Decrease)
From “Has”

(Diluted)
 

Discounted Cash Flow

   Total Equity Value

(millions)

  $ 344      $ 385        +12   $ 393        +14
   Per Share   $ 2.60      $ 2.91        $ 2.97     

2018 EV/EBITDA

   Total Equity Value

(millions)

  $ 156      $ 248        +59   $ 277        +77
   Per Share   $ 1.18      $ 1.88        $ 2.09     

Other Analyses

The analyses and data described below were presented to the Civeo Board for informational purposes only and did not provide the basis for the rendering of Lazard’s opinion.

Historical Trading Price Analysis

Lazard reviewed the range of trading prices for Civeo Common Shares for the 52 weeks ended November 17, 2017. Lazard observed that, during this period, the daily closing prices of Civeo Common Shares ranged from $1.59 to $3.65 per share on August 17, 2017 and March 1, 2017, respectively.

Analyst Price Targets

Lazard reviewed recently available equity analyst price targets based on Wall Street equity research reports prepared by equity analysts covering Civeo. Lazard observed price targets that ranged from $3.00 to $4.50 for Civeo.

Miscellaneous

In connection with Lazard’s services as financial advisor, Civeo has agreed to pay Lazard an aggregate fee for such services of $3.5 million, $750,000 of which became payable upon the rendering of Lazard’s opinion and the remainder of which is contingent upon the closing of the Acquisition. In addition, upon the closing of the Acquisition, Civeo may pay Lazard a discretionary fee in an amount up to $1 million to be determined by Civeo in its sole discretion. Civeo also agreed to reimburse Lazard for certain expenses incurred in connection with Lazard’s engagement and to indemnify Lazard and certain related persons under certain circumstances against certain liabilities that may arise from or relate to Lazard’s engagement.

Lazard in the past has provided, currently is providing and in the future may provide certain investment banking services to Civeo, for which Lazard has received and may receive compensation, including, in the past two years, having advised Civeo regarding certain strategic and financial matters. From July 13, 2015 through November 26, 2017, Lazard has been paid aggregate fees of approximately $1,250,000 by Civeo for such

 

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services ($750,000 of which is creditable toward the $3.5 million fee) and Civeo expects to pay Lazard an additional $250,000 on December 31, 2017 (which will be creditable toward the $3.5 million fee). In addition, in the ordinary course, Lazard and its affiliates and employees may trade securities of Civeo for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities, and may also trade and hold securities on behalf of Civeo, Noralta and certain of their respective affiliates. The issuance of Lazard’s opinion was approved by the opinion committee of Lazard.

Lazard did not recommend any specific consideration to the Civeo Board or that any given consideration constituted the only appropriate consideration for the Acquisition. Lazard’s opinion and analyses were only one of many factors taken into consideration by the Civeo Board in its evaluation of the Acquisition. Consequently, the analyses described above should not be viewed as determinative of the views of the Civeo Board or Civeo’s management with respect to the consideration payable in the Acquisition or as to whether the Civeo Board would have been willing to determine that a different consideration was fair.

Lazard is an internationally recognized investment banking firm providing a full range of financial advisory and securities services. Lazard was selected to act as Civeo’s financial advisor because of its qualifications, experience and reputation in investment banking and mergers and its familiarity with Civeo and its business.

Regulatory Approvals

Competition Act Approval

Part IX of the Competition Act (Canada) requires that parties to certain classes of transactions provide prescribed information to the Commissioner of Competition (the “Commissioner”) where the applicable thresholds set out in Sections 109 and 110 of the Competition Act are exceeded and no exemption applies (“Notifiable Transactions”). Subject to certain limited exceptions, a Notifiable Transaction cannot be completed until the parties to the transaction have each submitted the information prescribed pursuant to subsection 114(1) of the Competition Act (a “Notification”) to the Commissioner and the applicable statutory waiting period has expired or has been terminated early by the Commissioner. The initial waiting period is 30 days from the date the parties both file their respective Notifications. At the end of that period, the parties are permitted to complete the Notifiable Transaction unless, prior to the expiration of the waiting period, the Commissioner issues a supplementary information request (a “SIR”) to the parties, in which case the parties cannot complete the Notifiable Transaction until 30 days after the day in which the parties comply with the SIR, unless, before closing, the Competition Tribunal, upon the application of the Commissioner, issues an order prohibiting closing.

Alternatively to, or in addition to, filing a Notification, a party to a Notifiable Transaction may apply to the Commissioner under Subsection 102(1) of the Competition Act for an advance ruling certificate (an “ARC”) or, in the event that the Commissioner is not prepared to issue an ARC, a no-action letter advising that the Commissioner does not, at that time, intend to make an application under Section 92 of the Competition Act in respect of the Notifiable Transaction (a “No Action Letter”). If the Commissioner issues an ARC, the parties are exempt from the requirement to file a Notification. If the Commissioner issues a No-Action Letter and waives the requirement to file a Notification where the parties have supplied substantially similar information as would have been supplied with their Notification (a “Waiver”), the parties are not required to file a Notification and may complete the Notifiable Transaction. The filing of a request for an ARC or, in the alternative, a No-Action Letter and Waiver, does not start the statutory waiting period and, unless the parties have also filed a Notification, the parties cannot complete the Notifiable Transaction until the Commissioner has completed his review and issued either an ARC or a No Action Letter and Waiver.

Whether or not a transaction is subject to notification under Part IX of the Competition Act, the Commissioner of Competition may apply to the Competition Tribunal for a remedial order under section 92 of the Competition Act at any time before the transaction has been completed or, if completed, within one year after it was substantially completed, provided that, subject to certain exceptions, the Commissioner did not issue an

 

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ARC in respect of the transaction. On application by the Commissioner under section 92 of the Competition Act, the Competition Tribunal may, where it finds that the transaction prevents or lessens, or is likely to prevent or lessen, competition substantially, order that the transaction not proceed or, if completed, order its dissolution or the disposition of the assets or shares acquired; in addition to, or in lieu thereof, with the consent of the person against whom the order is directed and the Commissioner, the Competition Tribunal may order a person to take any other action. The Commissioner of Competition may also seek interim relief from the Competition Tribunal under sections 100 and 104 of the Competition Act. The Competition Tribunal is prohibited from issuing a remedial order where it finds that the transaction or proposed transaction has brought or is likely to bring about gains in efficiency that will be greater than, and will not offset, the effects of any prevention or lessening of competition that will result or is likely to result from the transaction and that the gains in efficiency would not likely be attained if the order were made.

It is a condition to completion of the Acquisition that the Commissioner shall have (i) issued an ARC or (ii) issued a No Action Letter, on terms satisfactory to Civeo, acting reasonably, and the obligation to file a Notification has been waived or the applicable statutory waiting period under the Competition Act has expired or terminated.

The Acquisition is a Notifiable Transaction. On December 15, 2017, Civeo submitted a request to the Commissioner for an ARC or, in the alternative, a No-Action Letter and Waiver.

Investment Canada Act Approval

Subject to certain limited exceptions, the direct acquisition of control of a Canadian business by a non-Canadian that exceeds a financial threshold prescribed under Part IV of the Investment Canada Act (a “Reviewable Transaction”) is subject to review and cannot be implemented until the non-Canadian has submitted an application (an “Application for Review”) to the Minister responsible for the Investment Canada Act (the “Minister”) and the Minister is satisfied, or is deemed under the Investment Canada Act to be satisfied, that the Reviewable Transaction is likely to be of net benefit to Canada (a “net benefit ruling”). The submission of the Application for Review triggers an initial review period of up to 45 days. If the Minister has not completed the review by that date, the Minister may unilaterally extend the review period for up to a further 30 days or such further period agreed to by the Minister and the non-Canadian.

In determining whether to issue a net benefit ruling, the Minister is required to consider, among other things, the Application for Review and any written undertakings offered by the non-Canadian. The prescribed factors that the Minister must consider when determining whether to issue a net benefit ruling include, among other things, the effect of the investment on economic activity in Canada (including the effect on employment, utilization of Canadian products and services and exports), on participation by Canadians in the acquired business, on productivity, industrial efficiency, technological development, product innovation, product variety and competition in Canada, and the compatibility of the investment with national and provincial industrial, economic and cultural policies, as well as the contribution of the investment to Canada’s ability to compete in world markets.

The Acquisition constitutes a Reviewable Transaction. However, the Acquisition would not exceed the financial threshold under the Investment Canada Act but for a small element of the business of Noralta that is considered to be a “cultural business” within the meaning of the Investment Canada Act. The responsible Minister is the Minister of Canadian Heritage in respect of cultural businesses. It is a condition to completion of the Acquisition that the Minister has sent a notice to Civeo under the Investment Canada Act stating that the Minister is satisfied, or is deemed to be satisfied, the Acquisition is likely to be of net benefit to Canada.

On December 15, 2017, Civeo filed an Application for Review with the Cultural Sector Investment Review Division of Department of Canadian Heritage and a notification with the Investment Review Division of the Department of Innovation, Science and Economic Development.

 

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Listing of the Common Shares on the NYSE

The Common Shares are listed on the NYSE under the symbol “CVEO”. It is a condition of closing that the Common Shares issuable under the Purchase Agreement (including the Common Shares issuable upon conversion of the Preferred Shares) be accepted for listing on the NYSE.

Material Canadian Federal Income Tax Consequences of the Acquisition to Civeo and Civeo Shareholders

Shareholders Generally

The following is, as of the date hereof, a general summary of the principal Canadian federal income tax considerations generally applicable under the Income Tax Act (Canada) (the “Tax Act”) in respect of the Acquisition to a beneficial owner of the Common Shares who (i) at all relevant times, deals at arm’s length with Civeo and Noralta for purposes of the Tax Act; (ii) is not affiliated with Civeo or Noralta for purposes of the Tax Act; and (iii) at all relevant times holds their Common Shares as capital property for purposes of the Tax Act. The Common Shares will generally constitute capital property to a holder thereof unless such securities are held in the course of carrying on a business of buying and selling securities or in connection with an adventure in the nature of trade. Certain Civeo shareholders resident in Canada within the meaning of the Tax Act whose Civeo shares might not otherwise qualify as capital property may in certain circumstances be entitled to make an irrevocable election in accordance with subsection 39(4) of the Tax Act to have their Common Shares and any other “Canadian security” (as defined in the Tax Act) owned in the taxation year of the election and in all subsequent taxation years deemed to be capital property.

This summary is based upon the provisions of the Tax Act and the regulations enacted thereunder (the “Regulations”) in force as of the date hereof and Civeo’s understanding of the current published administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”). This summary takes into account all specific proposals to amend the Tax Act or the Regulations that have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”); and assumes that the Proposed Amendments will be enacted in the form proposed, although no assurance can be given that the Proposed Amendments will be enacted or otherwise implemented in their current form, if at all. If the Proposed Amendments are not enacted or otherwise implemented as proposed, the Canadian federal income tax consequences may not be as described below.

On July 18, 2017, the Minister of Finance (Canada) released a consultation paper that included an announcement of its intention to amend the Tax Act to increase the tax cost of earning passive investment income through a private corporation. On October 18, 2017, the Minister of Finance (Canada) announced that the government was considering how to proceed with these proposals while taking into account the feedback received on the consultation paper. No specific amendments to the Tax Act have been proposed in connection with these announcements. Civeo shareholders that are private Canadian corporations should consult their own tax advisors.

This summary is not exhaustive of all possible Canadian federal income tax considerations applicable in the respect of the Acquisition and, except for the Proposed Amendments, does not take into account or anticipate any changes in the law, whether by legislative, regulatory or judicial action, or changes in the administrative policies or assessing practices of the CRA. This summary does not take into account any provincial, territorial or foreign tax considerations, which may differ significantly from the Canadian federal income tax consequences discussed herein.

This summary is not applicable to any shareholder of Civeo: (i) that is a “financial institution” within the meaning of subsection 142.2(1) of the Tax Act; (ii) that is a “specified financial institution” as defined in subsection 248(1) of the Tax Act; (iii) that has elected to report its “Canadian tax results” within the meaning of section 261 of the Tax Act in a currency other than Canadian currency; (iv) an interest in which is, or for whom the Common Shares would be, a “tax shelter investment” as defined in the Tax Act; (v) that has entered into a

 

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“derivative forward agreement,” a “dividend rental agreement,” a “synthetic equity arrangement” or a “synthetic disposition arrangement” as defined in the Tax Act with respect to its Common Shares or (vi) who has acquired or will acquire Civeo shares on the exercise of an employee stock option received in respect of, in the course of, or by virtue of, employment. Such Civeo shareholders should consult their own tax advisors.

This summary is of a general nature only and is not intended to be, and should not construed to be, legal, business or tax advice to any particular Civeo shareholder. Accordingly, shareholders of Civeo should consult their own tax advisors with respect to their particular circumstances.

Civeo Shareholders Resident in Canada

The following portion of this summary is generally applicable to a Civeo shareholder who, for purposes of the Tax Act and at all relevant times: (i) is or is deemed to be resident in Canada; (ii) is not exempt from tax under Part I of the Tax Act; and (iii) is not excluded from this summary by the comments in “– Shareholders Generally” above.

Each shareholder described above (each a “Resident Shareholder”) will not dispose of the Resident Shareholder’s Common Shares or receive any consideration by virtue of the Acquisition. Accordingly, each Resident Shareholder will not realize a capital gain (or incur a capital loss) in respect of the Resident Shareholder’s Common Shares as a consequence of the Acquisition.

Civeo Shareholders Not Resident in Canada

The following portion of this summary is generally applicable to a Civeo shareholder who, for purposes of the Tax Act and at all relevant times: (i) is not resident, nor deemed to be resident, in Canada for purposes of the Tax Act; (ii) does not and will not use or hold or be deemed to use or hold their Common Shares in the course of carrying on business in Canada; and (iii) is not excluded from this summary by the comments in “– Shareholders Generally” above. Special rules, which are not discussed below, may apply to a non-resident of Canada that is an insurer which carries on business in Canada and elsewhere. Non-Resident Shareholders should obtain tax advice of any foreign tax consequences of the Acquisition based upon their particular circumstances.

A shareholder described above (each, a “Non-Resident Shareholder”) is subject to tax under the Tax Act in respect of a capital gain arising on the disposition of shares only where such shares are or are deemed to be “taxable Canadian property” (as defined in the Tax Act) of the Non-Resident Shareholder.  However, because each Non-Resident Shareholder will not dispose of their Common Shares or receive any consideration by virtue of the Acquisition, the Non-Resident Shareholder will not realize a capital gain subject to Canadian income tax in respect of their Common Shares as a consequence of the Acquisition.

Civeo Corporation

Upon completion of the Acquisition, Civeo will have an adjusted cost base in all of the shares of Noralta acquired as a result of the Acquisition equal to the aggregate consideration paid by Civeo for such shares. Any capital gain (or loss) arising from the disposition of such shares will be measured from this adjusted cost base. Dividends received on the Noralta shares by Civeo will be included in computing Civeo’s income and will generally be deductible in computing Civeo’s taxable income. In certain circumstances, subsection 55(2) of the Tax Act will treat a taxable dividend received by Civeo as proceeds of disposition or as a capital gain. A disposition or deemed disposition of the shares of Noralta by Civeo will generally result in a capital gain (or a capital loss) to the extent that the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base to Civeo of the shares of Noralta immediately before the disposition. Generally, one half of any capital gain realized by Civeo in a taxation year will be included in computing Civeo’s income in the year of disposition as a taxable capital gain and one half of any capital loss (an “allowable capital loss”) must be deducted from Civeo’s taxable gains in the year of disposition. Allowable capital losses in excess

 

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of taxable capital gains for a taxation year generally may be carried back and deducted in any of the three preceding taxation years or carried forward indefinitely and deducted against net taxable gains in those other taxation years, subject to and in accordance with the rules contained in the Tax Act. Any capital loss arising on a disposition of the shares of Noralta may, in certain circumstances, be reduced by the amount of any dividends which have been received by Civeo on the shares of Noralta.

Anticipated Accounting Treatment

Under Accounting Standards Codification 805, the Acquisition is expected to be accounted for using acquisition accounting pursuant to which Civeo is considered the acquiring entity for accounting purposes. As such, Civeo expects to allocate the total purchase consideration to Noralta’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values at the date of the completion of the Acquisition.

Final valuations of Noralta’s property, plant and equipment, and identifiable intangible and other assets acquired have not yet been completed as management is still reviewing the existence, characteristics and useful lives of Noralta’s tangible and intangible assets. The completion of the valuation could result in significantly different amortization expenses and balance sheet classifications than those presented in the unaudited pro forma condensed consolidated financial information included in this proxy statement. After completion of the Acquisition, the results of operations of both Civeo’s and Noralta’s will be included in the consolidated financial statements of Civeo.

For further discussion of the accounting treatment, see the section entitled “Unaudited Pro Forma Combined Financial Data.”

Appraisal Rights

Shareholders will not have appraisal rights in connection with the Acquisition.

 

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THE PURCHASE AGREEMENT

The following is a discussion of the material provisions of the Purchase Agreement. This is only a summary and may not contain all of the information that is important to you. A copy of the full text of the Purchase Agreement is attached to this proxy statement as Annex A and is incorporated herein by reference. In the event of any discrepancy between the summary below and the full text of the Purchase Agreement, the Purchase Agreement shall control.

The Acquisition

Civeo will acquire, directly or indirectly, all of the issued and outstanding shares of Noralta. Prior to closing, Noralta and certain sellers will cause the amalgamation of such entities into a new entity, and under the Purchase Agreement, Civeo will directly acquire the outstanding shares of such amalgamated entity, which will result in Noralta becoming a wholly owned subsidiary of Civeo.

Purchase Consideration

The aggregate consideration to be paid by Civeo to the sellers at the closing of the Acquisition will be (i) C$209,500,000 in cash, of which C$28,500,000 will be held in escrow by the Escrow Agent to support the sellers’ indemnification obligations under the Purchase Agreement, (ii) 32,790,868 Common Shares, of which 13,491,100 shares will be held in escrow by the Escrow Agent and released in three equal installments from escrow upon the satisfaction of certain conditions related to a customer contract remaining in place in June 2021, June 2022 and June 2023, and (iii) 9,679 Preferred Shares with an initial liquidation preference of US$96,790,000.

The cash portion of the consideration will be subject to customary adjustments for Noralta’s net working capital (above or below target net working capital of C$15,100,000), debt, cash and unpaid transaction expenses at closing. As soon as practicable after the closing date, Civeo shall calculate the actual amount of Noralta’s net working capital, cash, indebtedness and unpaid transaction expenses as of the closing date. The sellers will have the ability to contest such amounts, and following the final determination of net working capital, cash, indebtedness and unpaid transaction expenses in accordance with the dispute mechanisms in the Purchase Agreement, the parties will cause the excess or deficiency of such amounts over the amounts calculated at closing to be paid to Civeo, to the extent of any deficiency, and to the sellers, to the extent of any excess.

Representations and Warranties

The Purchase Agreement contains representations and warranties made by Civeo and the sellers regarding aspects of the businesses, financial condition and structure of Civeo and Noralta and the sellers’ ownership of Noralta shares, as well as other facts pertinent to the Acquisition. Civeo’s representations and warranties relate to, among other things:

 

    incorporation, organization and authority;

 

    necessary proceedings to authorize the Purchase Agreement and the transactions contemplated thereby;

 

    issuance of the Common Shares and the Preferred Shares in the Acquisition;

 

    the valid and binding nature of the Purchase Agreement and the other documents to be delivered by Civeo at the closing;

 

    consents required in connection with the transactions contemplated by the Purchase Agreement;

 

    absence of any conflict or violation of organizational documents, applicable laws or contracts as a result of entering into and carrying out Civeo’s obligations of the Purchase Agreement;

 

    Civeo’s authorized share capital;

 

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    Civeo’s financial statements;

 

    no material change at Civeo since December 31, 2016;

 

    compliance with applicable securities laws, including SEC filing requirements;

 

    governmental approvals required in connection with the transactions contemplated by the Purchase Agreement;

 

    compliance with applicable laws, including anti-corruption and economic sanctions laws;

 

    brokers and finders fees;

 

    Civeo’s status as a World Trade Organization (“WTO”) investor under the Investment Canada Act;

 

    title to assets;

 

    not a reporting issuer in Canada;

 

    no bankruptcy;

 

    Civeo’s financial ability to consummate the transactions contemplated by the Purchase Agreement without any financing contingency;

 

    no material default or breach of any material contract of Civeo; and

 

    no inducement or reliance.

Each of the sellers jointly has made customary representations and warranties with respect to Noralta, including:

 

    incorporation, organization, corporate structure and authority;

 

    necessary proceedings to authorize the Purchase Agreement and the transactions contemplated thereby;

 

    the valid and binding nature of the Purchase Agreement and the other documents to be delivered by Noralta, the amalgamated entity, or any of their subsidiaries at the closing;

 

    consents required in connection with the transactions contemplated by the Purchase Agreement;

 

    Noralta’s authorized share capital;

 

    no options to purchase or preemptive, repurchase, redemption rights or similar rights in respect of Noralta’s shares and no indebtedness with voting rights;

 

    title to assets;

 

    operation and condition of Noralta’s assets;

 

    no express or implied warranty by Noralta or its subsidiaries to any person and no unresolved warranty claims against Noralta and its subsidiaries;

 

    permits;

 

    financial statements;

 

    absence of undisclosed liabilities;

 

    outstanding indebtedness;

 

    independence of Noralta’s auditors;

 

    no material change at Noralta since May 31, 2017;

 

    compliance with laws;

 

    guarantees of indebtedness;

 

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    certain tax matters;

 

    deferred payments for acquisitions of any business, assets or securities, including earn-out payments;

 

    no material default or breach of any material contract of Noralta;

 

    disclosure of all material information that could have a Material Adverse Effect (as defined below);

 

    no material outstanding dispositions of assets, properties or undertakings to third persons;

 

    corporate records;

 

    no breach caused by entry into the Purchase Agreement nor the consummation of the transactions contemplated thereby;

 

    absence of litigation;

 

    brokers and finders fees;

 

    disclosure regarding employees;

 

    employee benefit plans;

 

    labor and employment matters;

 

    intellectual property;

 

    requisite approvals of governmental entities or regulators in connection with the transactions contemplated by the Purchase Agreement;

 

    not a reporting issuer in Canada;

 

    no off-balance sheet arrangements;

 

    owned real property;

 

    leased real property;

 

    compliance with applicable environmental and safety laws;

 

    no shareholders’ agreements, pooling agreements, voting trusts or similar agreements in respect of Noralta’s shares that will not be terminated prior to closing;

 

    no bankruptcy;

 

    no ownership by Noralta’s officers or directors of any competitor of Noralta;

 

    confidentiality and privacy;

 

    ownership of partnerships or joint ventures;

 

    insurance;

 

    related party transactions;

 

    customers and suppliers;

 

    dividends and distributions;

 

    no default under Noralta’s lending agreements;

 

    accounts receivable;

 

    bank accounts;

 

    no restrictions on the operation of Noralta’s business; and

 

    certain matters relating to Noralta’s joint ventures.

 

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Each of the sellers jointly and severally has made customary representations and warranties with respect to, among other things:

 

    ownership of the shares to be purchased in the Acquisition;

 

    incorporation, organization, authority and capacity;

 

    necessary proceedings to authorize the Purchase Agreement and the transactions contemplated thereby;

 

    the valid and binding nature of the Purchase Agreement and the other documents to be delivered by each of the sellers at the closing;

 

    residency of the sellers for tax purposes;

 

    no bankruptcy;

 

    certain securities law matters; and

 

    no inducement or reliance.

Lance Torgerson separately has made certain representations of the sellers listed above deemed to be fundamental representations under the Purchase Agreement, which are those representations and warranties relating to incorporation, organization, corporate structure and authority, necessary proceedings, valid and binding obligations, capital, right to acquire securities, title to assets, and ownership of sellers’ shares.

Material Adverse Effect

Many of the representations and warranties and certain of the conditions to complete the Acquisition are subject to a Material Adverse Effect qualification. A “Material Adverse Effect” means any effect or change that is, or would reasonably be expected to be, material and adverse to the business, operations, assets, capitalization or financial condition of Civeo, on the one hand, or Noralta, Noralta’s subsidiaries (taken as a whole) or Dene Koe GP or Dene Koe LP (a joint venture co-owned by Fort McKay First Nation and Noralta), on the other hand, as applicable, other than any matter, action, effect, occurrence, or change arising or resulting from: (i) general economic, market, financial, currency exchange, securities, bullion or commodity prices in Canada, the United States or elsewhere; (ii) conditions affecting the oil and natural gas industry, hospitality and lodging industry and/or petroleum services industry generally; (iii) in respect of Civeo only, any matter that has prior to the date of the Purchase Agreement been publicly disclosed in the Civeo’s SEC filings; (iv) in respect of Civeo only, any change in the trading price or volume of the Common Shares (it being understood that the causes underlying such change may be taken into account); (v) any change in ASPE, GAAP or laws or interpretations thereof; (vii) any adverse change or effect attributable to the announcement or pendency of the transactions contemplated by the Purchase Agreement (including any cancellations or delays in customer orders, any reductions in sales, or any disruption in supplier, distributor, partner or similar relationships or any loss of employees), (viii) the unionization of any employees or the filing of any certification applications to unionize any employees or the occurrence of any similar union activities, and (ix) matters permitted or contemplated by the Purchase Agreement or consented to or approved in writing by either Civeo (with respect to Noralta or its Subsidiaries) or the sellers (with respect to Civeo).

Survival of Covenants, Representations and Warranties

The representations and warranties of Civeo and the sellers will survive until the date that is 18 months after the closing date of the Acquisition. Representations and warranties related to taxes will survive the closing until six months after the expiration of the period during which any governmental entity is permitted to issue a tax assessment. All fundamental representations and warranties of Civeo and the sellers will survive until the date that is six years after the closing date of the Acquisition. Claims based upon fraudulent misrepresentation or fraud may be brought at any time.

 

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Covenants of the Sellers and Noralta

General Covenants

The sellers and Noralta have agreed that until the closing of the Acquisition, subject to certain identified exceptions:

 

    The sellers will not, directly or indirectly, dispose of any Noralta shares;

 

    The sellers and Noralta will provide all cooperation that Civeo may reasonably request in connection with the preparation and filing of any filings by Civeo required under the U.S. securities laws, including the preparation of financial statements;

 

    The sellers shall have the right to supplement or amend the information set forth in the Disclosure Letter to reflect events occurring after the date of the Purchase Agreement, subject to certain exceptions; and

 

    Noralta and its subsidiaries will maintain all insurance policies in full force and effect and make any claims thereunder in a timely fashion.

Covenants in Respect of Noralta’s Business

The sellers have agreed until the closing of the Acquisition to use their commercially reasonable efforts to cause Noralta and its subsidiaries, Dene Koe GP and Dene Koe LP to:

 

    Conduct their business in the ordinary course in material compliance with all applicable laws and material contracts;

 

    Preserve intact its business organization, books and records, keep available the services of its employees, and preserve its relationships with customers, suppliers and others with which it does business;

 

    Maintain and keep its material properties and assets in good repair and condition, subject to ordinary wear and tear;

 

    Obtain and maintain all authorizations required under applicable law or any contract to which Noralta, its subsidiaries, Dene Koe GP or Dene Koe LP is a party or by which any of their assets are bound; and

 

    Obtain from Noralta’s directors, shareholders, appropriate government entities and other persons any approvals, permits or consents required to complete the transactions contemplated by the Purchase Agreement.

Noralta has agreed until the closing of the Acquisition to use its commercially reasonable efforts not to, and not to permit any of its subsidiaries to without the prior written consent of Civeo (not to be unreasonably withheld), subject to certain identified exceptions:

 

    Make any individual capital expenditures in excess of C$500,000;

 

    Make any capital expenditures in excess of C$6,000,000 in the aggregate;

 

    Issue or modify, or agree to issue or modify, any equity or debt securities or rights to acquire securities;

 

    In its capacity as a shareholder of Dene Koe GP or as a limited partner of Dene Koe LP, vote in favor of amendments to the organizational documents of such entities that would breach any of the covenants related to the business of Noralta and its subsidiaries in the Purchase Agreement;

 

    Incur indebtedness not contemplated by Noralta’s existing financing arrangements or outside of the ordinary course;

 

    Enter into any material contracts, other than material contracts for catering services, lodging, logistics or accommodation services entered into in the ordinary course where such contracts are consistent with Noralta’s past practices and where the estimated cost does not exceed the estimated revenues;

 

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    Amend its organizational documents;

 

    Engage in a business materially different from its business as of the date of the Purchase Agreement;

 

    Sell, dispose or encumber a material portion of its assets;

 

    Redeem, purchase or offer to purchase any securities of Noralta;

 

    Implement any material salary, bonus or benefit increases or grant any material bonuses for employees outside of the ordinary course;

 

    Enter into any collective bargaining agreement;

 

    Enter into or perform any transactions with affiliates, other than in the ordinary course; and

 

    Change any accounting policy that was utilized for the purposes of preparing Noralta’s financial statements.

Necessary Consents

Noralta has agreed to use commercially reasonable efforts to obtain from its directors, shareholders, government entities, customers, lenders and other persons all approvals, permits and consents, including regulatory approvals, required to complete the Acquisition.

Non-Solicitation

The sellers and Noralta have agreed to cease all existing discussions and negotiations related to any acquisition proposal for Noralta and to request the prompt return or destruction of all confidential information previously furnished to any third parties (other than Civeo) related to any acquisition proposal. The sellers and Noralta have agreed until the earlier of the closing of the Acquisition or termination of the Purchase Agreement not to solicit, initiate or encourage, or participate in discussions regarding an acquisition proposal for Noralta or furnish any third party with any information to a third party in connection therewith.

Employee Severance

Noralta has agreed that, in the event it terminates any employee before the closing date of the Acquisition, Noralta will be responsible for any payments to such terminated employee.

Covenants of Civeo

Civeo has agreed until the closing of the Acquisition that it will:

 

    Use commercially reasonable efforts to conduct its business in the ordinary course;

 

    Not take or omit to take any action that is inconsistent with the Purchase Agreement or that would or could reasonably be expected to impair, hinder or delay consummation of the transactions contemplated by the Purchase Agreement;

 

    Use commercially reasonable efforts to obtain from its directors, shareholders, members, government entities and other persons any approvals, permits or consents required to complete the transactions contemplated by the Purchase Agreement;

 

    Use commercially reasonable efforts to obtain any required shareholder approval and listing of any Common Shares issued in the Acquisition on the NYSE;

 

    Use commercially reasonable efforts to be in material compliance with its reporting obligations and to comply with all material corporate and securities laws applicable to it; and

 

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    Not issue Common Shares in an amount exceeding 30,000,000 Common Shares without the consent of the sellers.

Civeo has also agreed that, in the event it terminates any employee after the closing date of the Acquisition, Civeo will be responsible for any payments to such terminated employee.

Mutual Covenants

The Purchase Agreement contains a number of mutual covenants, which subject to certain exceptions, obligate the parties under the Purchase Agreement to, among other things:

 

    Notify the other parties in writing of material changes related to their respective businesses;

 

    Use commercially reasonable efforts to consummate the transactions contemplated by the Purchase Agreement;

 

    Make filings under, and cooperate to obtain clearances and approvals under, the Competition Act (Canada) and the Investment Canada Act;

 

    Grant Civeo access to the books and records of Noralta until the earlier of the closing of the Acquisition or termination of the Purchase Agreement;

 

    File, or cause to be filed, tax returns and elections for Noralta and its subsidiaries; and

 

    Maintain the confidentiality of information shared between the parties.

Indemnification

Civeo has agreed to indemnify and save harmless the sellers from and against any losses of the sellers arising out of the non-fulfillment of any covenant or agreement of Civeo under the Purchase Agreement or any incorrectness in or breach of any representation or warranty of Civeo under the Purchase Agreement or any document delivered pursuant thereto, subject to the survival periods described above.

The sellers (and Lance Torgerson, in respect of the fundamental representations only), on a joint and several basis, have agreed to indemnify and save harmless Civeo from and against any losses of Civeo or, after the closing, Noralta and its subsidiaries, arising out of the non-fulfillment of any covenant or agreement of the sellers or, prior to the closing, Noralta, or any incorrectness in or breach of any representation or warranty of the sellers contained in the Purchase Agreement or any document delivered pursuant thereto, subject to the survival periods described above. In addition, the sellers have agreed to indemnify Civeo from and against:

 

    Any transaction expenses or indebtedness of Noralta which is not reflected in the sellers’ estimates of such amounts at the closing;

 

    Any losses suffered or incurred by Civeo as a result of or arising from the pre-closing restructuring and amalgamation of Noralta;

 

    Any tax liability of Noralta or its subsidiaries for the period ending on or prior to the closing date;

 

    Amounts incurred by Civeo to do certain required work up to a maximum amount of C$3,400,000 if incurred on or before the date that is 18 months from the closing of the Acquisition; and

 

    Any amounts for the deferred purchase price in respect of past acquisitions of any business, assets or securities, including earn-out liabilities, indemnification and similar liabilities, but excluding trade accounts payable and other accrued current liabilities included in Noralta’s closing net working capital.

The indemnification obligations of the parties set forth above are subject to certain limitations, including, among other things:

 

   

A threshold amount of losses required to be sustained prior to bringing a claim for breaches of representations (other than fundamental representations) of C$100,000 per claim and a C$1,000,000

 

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deductible in the aggregate, after which the indemnified party shall be entitled to indemnification for the amount of all such losses above C$1,000,000;

 

    A cap on the aggregate liability of the sellers or Civeo, as applicable, equal to C$126,500,000, other than with respect to losses incurred as a result of fraud or fraudulent misrepresentation or as a result of any breach of a covenant or fundamental representation and warranty;

 

    A cap on the aggregate liability of the sellers (and in the case of the fundamental representations and warranties, Lance Torgerson) or Civeo, as applicable, equal to C$420,000,000 in the case of fraud or fraudulent misrepresentation or as a result of any breach of a covenant or fundamental representation and warranty;

 

    Indemnifiable losses will be limited to losses that are the direct and reasonably foreseeable consequences of any breach (which may include losses relating to diminution in value of shares and loss of profits), and no party will be entitled to punitive, exemplary, special or similar damages, or consequential damages (except where such damages are related to diminution of value of shares, loss of profits, or other damages which are the reasonably foreseeable consequences of the breach or except to the extent such damages are payable to a third party); and

 

    The amount of any indemnifiable losses will be calculated net of insurance proceeds (net of any deductibles or increases in premiums associated therewith) or settlement or recovery from any third party.

The parties have agreed to use commercially reasonable efforts to mitigate or minimize any claim for indemnification to reasonably cooperate to minimize any claims by the other party.

In connection with the Acquisition, Civeo has obtained a representation and warranty insurance policy, which will take effect at the closing of the Acquisition. Noralta has agreed to bear up to C$1,799,850 of the premiums and other costs and expenses of the policy, with any excess premiums and other costs and expenses being borne by Civeo. Under the Purchase Agreement, Civeo will first seek recovery of indemnifiable losses for breaches of representations and warranties under the Purchase Agreement against the funds deposited into escrow and thereafter will seek recovery under the representation and warranty insurance policy (if available) before making any claims against the sellers or Lance Torgerson personally.

Conditions Precedent to the Acquisition

Mutual Conditions Precedent

Each party’s obligation to consummate the transactions contemplated by the Purchase Agreement is subject to the satisfaction or waiver of the following conditions as of the closing:

 

    Receipt of applicable regulatory approvals;

 

    Receipt of specified consents from third parties in form and substance reasonably satisfactory to the sellers and Civeo;

 

    Receipt of all other approvals and consents from governmental entities and third parties in respect of the transactions contemplated by the Purchase Agreement on terms and conditions reasonably acceptable to the sellers and Civeo, and the expiration or termination of all applicable statutory and regulatory waiting periods, except in each case where the failure or failures would not reasonably be expected to have a Material Adverse Effect;

 

    No act, action, suit or proceeding having been threatened or taken before or by any governmental entity or securities authority in Canada, the United States or elsewhere, and no law having been proposed, enacted, promulgated or applied, which has the effect to cease trade, enjoin, prohibit or impose material limitations or conditions on the transactions contemplated by the Purchase Agreement or which, if the Acquisition were consummated, would materially and adversely affect Civeo or Noralta or its subsidiaries; and

 

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    Receipt by Civeo of all applicable shareholder approvals and the approval of the listing of the Common Shares to be issued in the Acquisition on the NYSE.

Conditions Precedent for the Benefit of Civeo

The obligation of Civeo to consummate the transactions contemplated by the Purchase Agreement is subject to the satisfaction or waiver of the following conditions as of the closing:

 

    The representations and warranties of the sellers (other than the fundamental representations and warranties and without giving effect to any qualification by reference to materiality, material respects or Material Adverse Effect set forth therein) shall be true and correct at the closing of the Acquisition as if made at and as of the closing of the Acquisition (except to the extent any such representations and warranties expressly speak of an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date), except for any breaches that individually or in the aggregate would not have a Material Adverse Effect;

 

    The fundamental representations and warranties of the sellers shall be true and correct at the closing of the Acquisition as if made at and as of the closing of the Acquisition (except to the extent any such representations and warranties expressly speak of an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date);

 

    The sellers shall have performed or complied in all material respects with all of the obligations and covenants and conditions of the Purchase Agreement to be performed prior to the closing of the Acquisition;

 

    The sellers shall have delivered to Civeo a certificate of an authorized officer (or equivalent) of each of the sellers, and of Noralta, confirming the matters set forth in the three preceding bullet points;

 

    There shall not have occurred any Material Adverse Effect with respect to Noralta or any of its subsidiaries;

 

    There shall not have occurred any changes with respect to Noralta’s contracts with specified customers which may reasonably be considered to result in a Material Adverse Effect on Noralta, Civeo or the Acquisition;

 

    Civeo shall have either (x) received consent from the Regional Municipality of Wood Buffalo for the continuation of all existing business licenses and permits or (y) obtained new business licenses and permits as are required for the operation of Noralta’s business;

 

    Civeo shall have received copies of certain transaction documents, executed by the other parties thereto;

 

    The sellers shall be, immediately before the closing of the Acquisition, the legal and beneficial owners of the shares to be purchased in the Acquisition and shall have delivered original share certificates representing such shares, together with executed stock powers or other instruments of transfer, transferring such shares free and clear of any encumbrances;

 

    There shall be no outstanding options, warrants or any other convertible securities or rights to acquire any of the shares to be purchased in the Acquisition as of the closing of the Acquisition; and

 

    All indebtedness for borrowed money of Noralta and its subsidiaries, other than trade payables and accrued liabilities included in net working capital, shall have been repaid and the related security interests shall have been discharged and released.

Conditions Precedent for the Benefit of the Sellers

The obligation of each seller to consummate the transactions contemplated by the Purchase Agreement is subject to the satisfaction or waiver of the following conditions as of the closing:

 

    Civeo shall have paid the purchase price in accordance with the Purchase Agreement;

 

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    Civeo shall have filed articles of amendment to amend Civeo’s authorized capital to create the Preferred Shares;

 

    The Common Shares to be issued to the sellers shall, upon issuance, be listed on the NYSE;

 

    The representations and warranties of Civeo (other than the fundamental representations and warranties and without giving effect to any qualification by reference to materiality, material respects or Material Adverse Effect set forth therein) shall be true and correct at the closing of the Acquisition as if made at and as of the closing of the Acquisition (except to the extent any such representations and warranties expressly speak of an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date), except for any breaches that individually or in the aggregate would not have a Material Adverse Effect;

 

    The fundamental representations and warranties of Civeo shall be true and correct at the closing of the Acquisition as if made at and as of the closing of the Acquisition (except to the extent any such representations and warranties expressly speak of an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date);

 

    Civeo shall have performed or complied in all material respects with all of the obligations and covenants and conditions of the Purchase Agreement to be performed prior to the closing of the Acquisition;

 

    Civeo shall have delivered to the sellers a certificate of an authorized officer of Civeo confirming the matters set forth in the three preceding bullet points;

 

    The Common Shares and the Preferred Shares to be issued to the sellers shall have been (i) duly authorized and validly issued as fully paid and non-assessable shares; (ii) issued to the sellers free and clear of all encumbrances, other than those arising under the transaction documents and applicable securities laws; and (iii) issued in compliance with applicable securities laws and not issued in violation of any contractual restriction;

 

    The sellers shall have received copies of certain transaction documents, executed by Civeo;

 

    The pre-closing restructuring and amalgamation of Noralta shall have been completed to the satisfaction of the sellers;

 

    Civeo shall have provided to the applicable governmental entity replacement letters of credit for certain existing letters of credit; and

 

    There shall not have occurred any Material Adverse Effect with respect to Civeo.

Termination of the Purchase Agreement

The Purchase Agreement may, by notice in writing given prior to the closing of the Acquisition, be terminated on the earliest of any of the following:

 

    by mutual written consent of Civeo, on the one hand, and the sellers, on the other hand;

 

    by either Civeo, on the one hand, or the sellers, on the other hand, if the Acquisition is not consummated by 5:00 p.m. (Edmonton time) on May 31, 2018 or such later date as mutually agreed to by the parties to the Purchase Agreement;

 

    by either Civeo, on the one hand, or the sellers, on the other hand, if the share issuance proposal is not approved by Civeo’s shareholders at the special meeting or at any adjournment or postponement thereof at which a vote on the share issuance proposal is taken; or

 

    by Civeo if any of the sellers materially breaches any of its non-solicitation covenants in the Purchase Agreement.

 

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Professional Fees

Each party to the Purchase Agreement will pay its respective legal, accounting and other professional advisory fees, costs and expenses incurred in connection with the Purchase Agreement and the transactions contemplated thereby, except as otherwise provided for therein.

Dispute Resolution

The Purchase Agreement permits any party thereto to deliver to the other parties a written notice of a dispute under the Purchase Agreement and requires the parties to use all commercially reasonable efforts to settle the dispute and consult and negotiate with each other in good faith to reach a mutually acceptable solution satisfactory to all parties.

In the event the parties are not able to reach a mutually acceptable solution to any dispute within a period of 20 business days after receipt of a dispute notice, then the dispute shall be finally settled by arbitration in accordance with the provisions of the Arbitration Act (Alberta), based upon arbitration procedures set forth in the Purchase Agreement.

Public Announcement/Proxy Statement

The parties to the Purchase Agreement have agreed to consult with and obtain the consent (not to be unreasonably withheld) of each other before issuing any press release or making any other public announcement with respect to the Purchase Agreement or the transactions contemplated thereby, unless such release or announcement is required by applicable law or the listing requirements of the NYSE.

In addition, Civeo is expressly permitted to include financial and other information pertaining to Noralta in any disclosure required to be filed with the SEC, including disclosure of the Purchase Agreement. The sellers shall have a reasonable opportunity to review and comment on any draft filing with the SEC containing information related to Noralta and its business, and Civeo shall give good faith consideration to any comments by the sellers and Noralta.

In connection with any disclosure by Civeo required by applicable securities laws, the sellers and Noralta have agreed to furnish information concerning themselves, their affiliates and the holders of their capital stock and to provide such other assistance as Civeo may reasonably request, including financial statements compliant with Regulation S-X.

Applicable Law

The Purchase Agreement is governed by and construed in accordance with the Laws of the Province of Alberta and the federal Laws of Canada applicable therein without reference to conflict of laws principles.

Successors and Assigns

No seller shall transfer the Purchase Agreement without the prior written consent of Civeo, and Civeo shall not assign the Purchase Agreement without the prior written consent of all of the sellers.

Amendment and Waiver

Any party to the Purchase Agreement has the right to waive any term or condition applicable to it in a written instrument executed on behalf of such party. No amendment, modification or supplement to the Purchase Agreement shall be effective unless provided in writing and signed by all parties to the Purchase Agreement.

 

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Civeo Board Following Closing

Civeo will take all necessary actions to cause, concurrent with the closing, the appointment, effective upon the closing, of Lance Torgerson, or with the prior written consent of Civeo, following the review and approval of the proposed nominee by the nominating committee of the Civeo Board, an alternate nominee of the Torgerson Trust (Lance Torgerson or such alternate nominee being, the “Torgerson Nominee”) to be added to the Civeo Board as a Class 1 director. After the closing, Civeo will take all necessary actions to nominate the Torgerson Nominee for election to the Civeo Board at the 2018 annual general meeting of Civeo shareholders, unless the Torgerson Nominee has failed to comply in all material respects with the governance guidelines and policies of Civeo applicable to directors during the period of time commencing on the closing date and ending on the date immediately preceding such Torgerson Nominee’s re-nomination. If at any time the Torgerson Trust owns less than 10% of the Common Shares (treating the Preferred Shares on an “as converted basis”), the Torgerson Nominee must tender his or her resignation from the Civeo Board.

Third Parties

Other than as may be permitted in connection with the indemnification obligations under the Purchase Agreement, the Purchase Agreement does not and is not intended to confer any rights or remedies upon any person or entity other than the parties thereto and their respective successors and permitted assigns, and no such party will be entitled to rely on the provisions of the Purchase Agreement.

 

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THE REGISTRATION RIGHTS AGREEMENT

The following is a discussion of the Registration Rights Agreement. This is a summary only and may not contain all of the information that is important to you. A copy of the full text of the Registration Rights Agreement is attached as Annex B to this proxy statement. In the event of any discrepancy between the summary below and the full text of the Registration Rights Agreement, the Registration Rights Agreement shall control.

At the closing of the Acquisition, Civeo will enter into the Registration Rights Agreement with the Torgerson Trust and 989677. In this section, each of the parties to the Registration Rights Agreement (other than Civeo) is referred to as a “Restricted Shareholder.”

Shelf Registration Statement

Pursuant to the Registration Rights Agreement, Civeo has agreed that, as soon as practicable following the date that is 18 months after the date of the Registration Rights Agreement, but in no event more than 30 days thereafter, Civeo will use its commercially reasonable efforts to prepare and file a shelf registration statement to register the Common Shares held by the Restricted Shareholders upon the closing of the Acquisition (including any Common Shares held in escrow) and any Common Shares issued upon conversion of the Preferred Shares held by the Restricted Shareholders upon the closing of the Acquisition. Civeo is obligated to use commercially reasonable efforts to cause such shelf registration statement to be declared effective by the SEC within 150 days after filing.

If a shelf registration statement required under the Registration Rights Agreement does not become, or is not declared, effective within 180 days after the date that is 18 months after the date of the Registration Rights Agreement, then the dividend rate of the Preferred Shares will be increased by (i) 0.25% per annum commencing on the first succeeding dividend payment date after such registration default and (ii) 0.25% per annum on each subsequent dividend payment date until such time as a shelf registration statement becomes effective (up to a maximum increase of 1.00% per annum).

Piggyback Rights

Pursuant to the Registration Rights Agreement, if Civeo proposes to file a registration statement providing for the public offering of Common Shares, for its own account or for the account of a selling shareholder, for sale to the public in an underwritten public offering for cash, the Restricted Shareholders will have customary piggyback registration rights that allow them to include their Common Shares that they own in any such registration statement, subject to proportional cutbacks. No piggyback rights will be available incidental to any public offering by Civeo (i) relating to any employee benefit, compensation, incentive or savings plan or dividend reinvestment plans, (ii) relating to the acquisition or merger by Civeo or any of its subsidiaries of or with any other business, (iii) under Civeo’s existing shelf registration statement on Form S-3, (iv) to be registered on a registration statement on Form S-4 or Form S-8 (or any successor forms thereto) or a registration statement for the offering or sale of the Common Shares issuable upon conversion of debt securities, or (v) only to existing holders of securities issued by Civeo (including the Restricted Shareholders).

Limitations; Expenses; Indemnification

The Restricted Shareholders’ registration rights are subject to certain customary limitations, including Civeo’s right to delay or withdraw a registration statement under certain circumstances. Civeo generally will be required to bear the registration expenses, other than underwriting discounts and commissions and transfer taxes or stamp or other duties attributable to a Restricted Shareholder’s sale or other disposition of the Common Shares. In addition, Civeo will pay the reasonable fees and expenses of one legal counsel selected by the majority-in-interest of the Restricted Shareholders participating in any public offering. Under the Registration Rights Agreement, Civeo has agreed to indemnify the Restricted Shareholders against any losses, claims,

 

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damages or liabilities resulting from any untrue statement or omission of a material fact in any registration statement or prospectus pursuant to which they sell Common Shares, unless such liability arose from their misstatement or omission, and each of the Restricted Shareholders, severally and individually, has agreed to indemnify Civeo against any losses, claims, damages or liabilities caused by such Restricted Shareholder’s misstatements or omissions in those documents.

Standstill and Voting Restrictions

The Restricted Shareholders will be subject to customary standstill restrictions, including a restriction on the purchase of additional Common Shares, and a restriction on voting their Common Shares that limits the voting by such holders of Common Shares (including Common Shares held in escrow) in excess of 15% of the voting power of the outstanding Common Shares, which will be voted consistently with all other Civeo shareholders (other than the Restricted Shareholders). In addition, the Restricted Shareholders have agreed not to, directly or indirectly, (i) solicit shareholders for the approval of any shareholder proposals, (ii) propose or seek to effect a change of control of Civeo, (iii) engage in a proxy solicitation involving Civeo, or (iv) form, join or otherwise participate in a group or voting trust with respect to Common Shares (other than a group comprised solely of Restricted Shareholders, their affiliates and permitted transferees) for the purpose of acquiring, holding, voting or disposing of Common Shares. The restrictions described in the preceding sentence shall not apply if Civeo has entered into a definitive agreement, the consummation of which would result in a change of control of Civeo, or any person has commenced a public tender or exchange offer which if consummated would result in a change of control of Civeo. The standstill and voting restrictions in the Registration Rights Agreement shall terminate at such time as the Common Shares owned by the Restricted Shareholders in the aggregate no longer constitute at least five percent of the Common Shares then outstanding (calculated assuming conversion of all of the outstanding Preferred Shares) or upon specified bankruptcy or change of control events.

Restrictions on Transfer

Each Restricted Shareholder will not transfer any of its Common Shares or Preferred Shares for a period of 18 months after the date of the Registration Rights Agreement, subject to certain exceptions, including transfers to affiliates. After the 18-month restricted period, any Restricted Shareholder will be permitted to transfer their Common Shares in any public offering or in a sale transaction pursuant to and in accordance with Rule 144 under the Securities Act, so long as no such transfer, when taken together with any and all other transfers during the period of 90 consecutive days ending on the date of such transfer, involves a number of Common Shares in excess of 10 percent of the number of such Restricted Shareholder’s Common Shares issued to such Restricted Shareholder pursuant to the Purchase Agreement (calculated assuming conversion of such Restricted Shareholder’s Preferred Shares, if any). The foregoing transfer restrictions will not apply to a transfer in a public offering pursuant to a piggyback registration statement. In addition, no Restricted Shareholder may transfer any Common Shares or Preferred Shares to any competitor of Civeo or any person, whether individually or as part of a group, would then have the right to vote more than ten percent of the Common Shares then outstanding, other than transfers in an underwritten public offering or in a market transaction pursuant to Rule 144.

 

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DESCRIPTION OF THE PREFERRED SHARES

The following is a discussion of the proposed amendment to the Articles to establish the terms of the Preferred Shares. This is a summary only and may not contain all of the information that is important to you. A copy of the full text of the proposed amendment to the Articles is attached as Annex C to this proxy statement. In the event of any discrepancy between the summary below and the full text of the proposed amendment to the Articles, the proposed amendment to the Articles shall control.

It is a condition to closing the Acquisition under the Purchase Agreement that Civeo shall have filed the proposed amendment to the Articles to amend the Articles to create the Preferred Shares. Under the proposed amendment to the Articles, the Preferred Shares will generally have the following terms:

Voting Rights

The Preferred Shares will not have voting rights, except as statutorily required.

Dividends

The Preferred Shares will be entitled to receive a 2% annual dividend on the liquidation preference (initially US$10,000 per share), paid quarterly in cash or, at Civeo’s option, by increasing the Preferred Shares’ liquidation preference, or by any combination thereof. In the event that a shelf registration statement does not become effective within the time period specified in the Registration Rights Agreement, the dividend rate is subject to increase to up to a maximum of 3% until such registration statement becomes effective. For more information, please see the section entitled “The Registration Rights Agreement – Shelf Registration Statement.”

Conversion Rights

The Preferred Shares will be convertible into Common Shares at a conversion price of US$3.30 per Preferred Share, subject to customary anti-dilution adjustments, including in the case of dividends or distribution to holders of the Common Shares (the “Conversion Price”). Civeo will have the right to elect to convert the Preferred Shares into Common Shares if the 15-day volume weighted average price of the Common Shares is equal to or exceeds the Conversion Price. Holders of the Preferred Shares will have the right to convert the Preferred Shares into Common Shares at any time after two years from the date of issuance, and the Preferred Shares mandatorily convert after five years from the date of issuance. The Preferred Shares also convert automatically into Common Shares upon a change of control of Civeo. In the event of certain transactions that do not constitute a change of control but which would result in the Common Shares being converted into, or exchanged for, securities, cash or property (a “Reorganization Event”), each Preferred Share will, without the consent of the holders of the Preferred Shares, become convertible into the kind of securities, cash and other property that such holder of Preferred Shares would have been entitled to receive if such holder had converted its Preferred Shares into Common Shares immediately prior to such Reorganization Event.

Redemption Rights

Civeo may, at any time and from time to time, redeem any or all of the Preferred Shares for cash at the liquidation preference, plus accrued and unpaid dividends.

Liquidation Rights

The Preferred Shares will rank senior in all respects to the Common Shares with respect to dividend rights and rights upon the liquidation, dissolution or winding-up of Civeo up to the amount of the liquidation preference and accrued and unpaid dividends.

 

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DESCRIPTION OF CIVEO SHARE CAPITAL

The following summary of the material terms of the Civeo’s share capital following the Acquisition is not intended to be a complete summary of the rights and preferences of such share capital. We urge you to read Civeo’s Notice of Articles, Articles and the proposed amendment to the Articles in their entirety for a complete description of the rights and preferences of Civeo’s securities following the Acquisition. The terms of the Preferred Shares are described in “Description of the Preferred Shares,” and the full text of the terms of proposed amendment to the Articles is attached as Annex C to this proxy statement. Copies of Civeo’s Notice of Articles and Articles have been filed with the SEC as exhibits to its periodic reports. The terms of the Common Shares and the Preferred Shares may also be affected by British Columbia law or the Business Corporations Act (British Columbia).

Authorized Capital

Civeo’s authorized shares consist of 550,000,000 Common Shares, up to 50,000,000 Class A preferred shares, no par value, to be issued in one or more series, and up to 50,000,000 Class B preferred shares, no par value, to be issued in one or more series, provided that the authorized limit of the Class A preferred shares and the Class B preferred shares is 50,000,000 shares in the aggregate. The first series of Class A preferred shares are designated as the “Class A Series 1 Preferred Shares” and are authorized for issuance of up to 50,000,000 Class A Series 1 Preferred Shares, and the first series of Class B preferred shares are designated as the “Class B Series 1 Preferred Shares” and are authorized for issuance of up to 50,000,000 Class B Series 1 Preferred Shares, provided that the authorized limit of the Class A Series 1 Preferred Shares and the Class B Series 1 Preferred Shares are 50,000,000 shares in the aggregate. As of [    ], [    ] Common Shares have been duly and validly issued and outstanding as fully paid and non-assessable shares and no Class A Series 1 Preferred Shares or Class B Series 1 Preferred Shares issued and outstanding. The Preferred Shares issuable pursuant to the Purchase Agreement consist of Class A Series 1 Preferred Shares. None of the Common Shares are held by Civeo or on behalf of Civeo.

Civeo may issue shares subject to the maximum authorized share capital contained in Civeo’s Notice of Articles. The maximum number of shares that Civeo is authorized to issue out of any class or series of shares may be increased or decreased by a resolution passed at a general meeting of shareholders by two thirds of the votes cast on such resolution by shareholders voting shares that carry the right to vote at general meetings. The Civeo Board is authorized to issue new Common Shares, Class A Series 1 Preferred Shares, or Class B Series 1 Preferred Shares without shareholder approval.

The rights and restrictions to which the Common Shares are subject are set out in the Articles. Civeo’s Notice of Articles and Articles permit the Civeo Board, without shareholder approval, to alter and attach special rights and restrictions to the Class A Series 1 Preferred Shares and the Class B Series 1 Preferred Shares, including the number of shares, dividend rights, liquidation preferences, voting rights, conversion rights, preemptive rights and redemption rights.

Common Shares

Voting Rights

Except as provided by law or pursuant to the rights that the directors may attach to the Preferred Shares, the Class B Series 1 Preferred Shares or any future outstanding series of preferred shares, holders of the Common Shares are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders, have the right to vote for the election of directors and do not have cumulative voting rights. Except as otherwise required by law, holders of the Common Shares are not entitled to vote on any amendment to the Notice of Articles or Articles that prejudices or interferes with the rights and special rights of the Preferred Shares, Class B Series 1 Preferred Shares or any future outstanding series of preferred shares if the holders of such affected series

 

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are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the notice of articles and articles or pursuant to British Columbia law or the Business Corporations Act (British Columbia) (the “BCA”).

Dividends

Subject to prior rights and preferences that may be applicable to the Preferred Shares, the Class B Series 1 Preferred Shares or any future outstanding series of preferred shares, holders of the Common Shares are entitled to receive ratably in proportion to the number of Common Shares held by them such dividends (payable in cash, shares or otherwise), if any, as may be declared from time to time by the Civeo Board out of funds available for dividend payments. Dividends will not be declared where there are reasonable grounds for believing the company is insolvent or the payment of dividends would render the company insolvent. There is not a fixed rate of dividends.

Conversion, Sinking Fund, Redemption, Liquidation and Preemption Rights

The holders of the Common Shares have no preferences or rights of conversion, exchange, pre-emption or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Shares. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of Civeo’s affairs, holders of the Common Shares will be entitled to share ratably in Civeo’s assets in proportion to the Common Shares held by them that are remaining after payment or provision for payment of all of Civeo’s debts and obligations and after distribution in full of preferential amounts to be distributed to holders of the outstanding Preferred Shares, the Class B Series 1 Preferred Shares or any other outstanding preferred shares, if any.

Preferred Shares

Civeo is authorized to issue Class A preferred shares and Class B preferred shares in one or more series. Civeo has further authorized the issuance of Class A Series 1 Preferred Shares and Class B Series 1 Preferred Shares of up to 50,000,000 shares, being the limit of both series of preferred shares to be issued in the aggregate. If the Acquisition is completed, the Class A Series 1 Preferred Shares will have the rights, privileges, restrictions and conditions described in the section of this proxy statement entitled “Description of the Preferred Shares.”

The Class B Series 1 Preferred Shares shall have the rights, privileges, restrictions and conditions as determined and attached from time to time by the board of directors, without the requirement for further shareholder approval. The issuance of preferred shares, while providing flexibility in connection with possible acquisitions and other corporate purposes, could reduce the relative voting power of holders of the Common Shares. It also could affect the likelihood that holders of the Common Shares will receive dividend payments and payments upon liquidation.

Notice of Articles and Articles

Provisions of Civeo’s Notice of Articles and Articles may delay or discourage transactions involving an actual or potential change in control or change in Civeo’s management, including transactions in which shareholders might otherwise receive a premium for their shares, or transactions that Civeo’s shareholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of Civeo’s shares.

These provisions are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of Civeo to first negotiate with the company. Civeo believes that the benefits of increased protection and Civeo’s potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure Civeo outweigh the disadvantages of discouraging these proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.

 

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Among other things, Civeo’s Notice of Articles and Articles:

 

    provide that Civeo’s directors are divided into three classes serving staggered three-year terms, with only one class being elected each year by Civeo’s shareholders. This classified board may discourage a third party from making a tender offer or otherwise attempting to obtain control of Civeo because it generally makes it more difficult for shareholders to replace a majority of Civeo’s directors;

 

    provide that Civeo’s directors may only be removed by shareholders passing a resolution with the requisite majority of three-quarters of the votes cast at a meeting of shareholders entitled to vote in the election of directors, voting together as a single class;

 

    establish advance notice procedures with regard to shareholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of Civeo’s shareholders. These procedures provide that notice of shareholder proposals must be timely given in writing to Civeo’s corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at Civeo’s principal executive offices not later than 120 days prior to the first anniversary date of the annual meeting for the preceding year. The Articles specify the requirements as to form and content of all shareholders’ notices. These requirements may preclude shareholders from bringing matters before the shareholders at an annual or special meeting;

 

    provide the Civeo Board the ability to issue the Preferred Shares and the Class B Series 1 Preferred Shares. This ability makes it possible for the Civeo Board to issue, without shareholder approval, preferred shares with voting or other rights or preferences that could impede the success of any attempt to change control of Civeo. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of the company;

 

    provide that the authorized number of directors may only be set by the Civeo Board;

 

    provide that all vacancies, including newly created directorships, may, except as otherwise required by law or, if applicable, the rights of holders of a series of preferred shares, be filled by the affirmative vote of a majority of directors then in office;

 

    provide that any action required or permitted to be taken by the shareholders must be effected at a duly called annual or special meeting of shareholders and may not be effected by any consent in writing in lieu of a meeting of such shareholders, subject to the rights of the holders of any series of preferred shares with respect to such series;

 

    provide that Civeo’s Notice of Articles and Articles can be amended or repealed at any annual or special meeting of shareholders or amended by the Civeo Board in certain circumstances, including the requirement that certain amendments by the shareholders to the Articles at a meeting be upon a resolution passed by the affirmative vote of the holders of 66 2/3% of the voting power of the issued and outstanding shares entitled to vote on such matters, voting together as a single class; and

 

    provide that, if a meeting of shareholders has been adjourned one or more times due to insufficient attendance required to pass any resolution, and at such adjourned meeting, less than the number of holders required to pass any resolution requiring 66 2/3% of the voting power of the issued and outstanding shares is present in person or by proxy, with the approval of the Civeo Board, the holders holding at least 66 2/3% of the shares present in person or by proxy at such adjourned meeting and entitled to vote on the matter, voting together as a single class, may alter the Articles.

When interpreting a director’s duties under British Columbia law, Canadian courts have generally interpreted a director’s duty to act in “the best interest of the company” to include a duty to treat all stakeholders affected by corporate actions equitably and fairly, including in the context of a change of control transaction. Accordingly, in determining what is in “the best interests of the company”, it may be legitimate for Civeo’s directors to consider the interests of not only the company’s shareholders, but other stakeholders, such as employees and creditors, as well.

 

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Limitation of Liability and Indemnification Matters

The Articles provide for the indemnification of directors to the fullest extent authorized by the BCA against all expenses, liabilities and losses (including judgments and fines) which may be reasonably incurred by reason of being or having been a director of the company, except for liability that cannot be indemnified under British Columbia law. British Columbia law provides that a company must not indemnify its directors if any of the following circumstances apply:

 

    if the indemnity or payment is made under an earlier agreement to indemnify or pay expenses and, at the time that the agreement to indemnify or pay expenses was made, the company was prohibited from giving the indemnity or paying the expenses by its articles;

 

    if the indemnity or payment is made otherwise than under an earlier agreement to indemnify or pay expenses and, at the time that the indemnity or payment is made, the company is prohibited from giving the indemnity or paying the expenses by its articles;

 

    if, in relation to the subject matter of the relevant proceeding, the director did not act honestly and in good faith with a view to the best interests of the company or the associated corporation, as the case may be, with such associated corporation being an affiliate of the company or a partnership, trust, joint venture or other unincorporated entity in which the director served in the capacity as a director or a position equivalent to that thereof, at the request of the company; or

 

    in the case of the relevant proceeding other than a civil proceeding, if the director did not have reasonable grounds for believing that the director’s conduct in respect of which the proceeding was brought was lawful.

Notwithstanding any of the above prohibitions, the company or a director may apply to court for an order that the company must indemnify the director for any liability or expenses incurred by the director or for any other related obligations of the company.

The Articles also provide that Civeo will indemnify its directors and officers to the fullest extent permitted by British Columbia law. The Articles also permit Civeo to purchase insurance on behalf of any officer, director, employee or other agent of the company or, at its request, of another entity, for any liability arising out of that person’s actions in such capacity. Civeo has entered into indemnification agreements with each of its current directors and executive officers requiring Civeo to indemnify these individuals to the fullest extent permitted under British Columbia law against liability that may arise by reason of their service to Civeo, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified, and have received a written undertaking from each such director and officer as required under British Columbia law.

 

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PRINCIPAL SHAREHOLDERS OF CIVEO AFTER THE ACQUISITION

After closing of the Acquisition, assuming all shares are released from escrow, current Civeo shareholders will own approximately [    ]% of the outstanding Common Shares and former Noralta shareholders will own approximately [    ]% of the outstanding Common Shares ([    ]% and [    ]% of the outstanding Common Shares by the Torgerson Trust and 989677, respectively), in each case on an as converted and fully diluted basis. If no shares are released from escrow, current Civeo shareholders will own approximately [    ]% of the outstanding Common Shares and former Noralta shareholders will own approximately [    ]% of the outstanding Common Shares, in each case on an as converted and fully diluted basis. The trustees of the Torgerson Trust are Lance Torgerson, Tammy Torgerson and Richard Torgerson. As legal title to the Common Shares and Preferred Shares to be held by the Torgerson Trust will vest in the trustees and the trustees will control and have the power to vote such shares and to exercise all rights incidental to the ownership of such shares in their capacity as the trustees of the Torgerson Trust, they may be deemed under applicable securities laws to also be the beneficial owner of such shares. Lance Torgerson is the indirect beneficial owner of all of the voting shares of 989677 and therefore may be deemed under applicable securities laws to be the beneficial owner of the Common Shares to be held by 989677.

 

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MARKET PRICE AND DIVIDEND INFORMATION

Civeo

Price Range of Securities

The Common Shares trade on the NYSE under the symbol “CVEO”. On November 24, 2017, the last business day prior to the announcement of the Acquisition, the Common Shares closed at $2.01. The following table includes the high and low sales prices for the Common Shares for the periods presented.

 

     High      Low      Dividend
Declared per
Share
 

Fiscal Year 2017

        

Fourth Quarter (through December 15, 2017)

   $ 2.92      $ 1.83        —    

Third Quarter

     2.95        1.57        —    

Second Quarter

     3.34        1.75        —    

First Quarter

     3.73        2.21        —    

Fiscal Year 2016

        

Fourth Quarter

   $ 2.81      $ 1.06        —    

Third Quarter

     1.93        1.00        —    

Second Quarter

     2.40        1.01        —    

First Quarter

     1.64        0.75        —    

Fiscal Year 2015

        

Fourth Quarter

   $ 2.39      $ 1.28        —    

Third Quarter

     3.12        1.17        —    

Second Quarter

     4.95        2.55        —    

First Quarter

     4.20        2.25        —    

Dividends

Civeo does not currently pay any cash dividends on the Common Shares. The declaration and amount of all potential future dividends will be at the discretion of the Civeo Board and will depend upon many factors, including Civeo’s financial condition, results of operations, cash flows, prospects, industry conditions, capital requirements of Civeo’s business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the Civeo Board deems relevant. In addition, Civeo’s ability to pay dividends is limited by covenants in its credit agreement. Future agreements may also limit Civeo’s ability to pay dividends, and Civeo may incur incremental taxes if required to repatriate foreign earnings to pay such dividends. If Civeo elects to pay dividends in the future, the amount per share of such dividend payments may be changed, or dividends may again be suspended, without advance notice. The likelihood that dividends will be reduced or suspended is increased during periods of market weakness. There can be no assurance that Civeo will pay a dividend in the future.

Noralta

Noralta is a privately-held company, and there is no established trading market for its securities.

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following unaudited pro forma combined financial data, which we refer to as the pro forma financial statements, give effect to the Acquisition of Noralta to be accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”) by Civeo.

The unaudited pro forma combined statements of operations have been prepared to give effect to the Acquisition as if it had been completed on January 1, 2016. The unaudited pro forma combined balance sheet has been prepared to give effect to the Acquisition as if it had been completed on September 30, 2017.

The pro forma financial statements are based on the historical audited and unaudited consolidated financial position and results of operations of Civeo and Noralta. The pro forma financial statements should be read in conjunction with the information contained in the sections entitled “The Acquisition,” “Summary – Selected Historical Financial Data of Noralta,” “Summary – Selected Historical Financial Data of Civeo” and “Annex E – Noralta Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this proxy statement and the historical consolidated financial statements and related notes appearing elsewhere in, or incorporated by reference into, this proxy statement.

Under the terms and subject to the conditions set forth in the Purchase Agreement, at closing, Civeo will acquire, directly or indirectly, all of the issued and outstanding shares of Noralta. As a result, Civeo will account for the Acquisition as an acquisition of Noralta. Accordingly, Noralta’s tangible and identifiable intangible assets acquired and liabilities assumed will be recorded at fair value at the date of completion of the Acquisition, with the excess of the purchase consideration over the fair value of Noralta’s net assets being recorded as goodwill. Valuations of property, plant and equipment and intangible and other assets acquired and liabilities assumed are preliminary as management is still reviewing the characteristics and assumptions related to Noralta’s assets acquired and liabilities assumed. Estimates and assumptions are subject to change upon finalization of these preliminary valuations at the time of consummation of the Acquisition. After consummation of the Acquisition, the completion of the valuation work could result in significantly different depreciation and amortization expenses and balance sheet classifications.

The pro forma financial statements were prepared in accordance with Article 11 of SEC Regulation S-X. The pro forma adjustments reflecting completion of the Acquisition are based upon the acquisition method of accounting in accordance with U.S. GAAP, and upon the assumptions set forth in the notes to the pro forma financial statements.

The historical financial data has been adjusted to give pro forma effect to events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma financial statements do not reflect any revenue enhancements, anticipated synergies or dis-synergies, operating efficiencies or cost savings that may be achieved. The fair value adjustments applied to the assets acquired and liabilities assumed reflected in the pro forma financial data are preliminary and are based on management’s estimates of the fair value and useful lives of the assets acquired and liabilities assumed.

The pro forma adjustments included in this proxy statement are subject to modification as additional information becomes available and additional analyses are performed depending on changes in interest rates, changes in foreign currency rates, changes in share prices and the final fair value determination of the assets acquired and liabilities assumed. The final allocation of the total purchase accounting will be determined after the Acquisition is closed and after completion of thorough analyses to determine the fair value of Noralta’s tangible and identifiable intangible assets acquired and liabilities assumed as of the date the Acquisition is completed. Increases or decreases in the fair values of the net assets acquired as compared with the information shown in the pro forma financial statements may change the amount of the total purchase consideration allocated to goodwill

 

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and other assets and liabilities, and may impact the combined statements of operations due to adjustments in depreciation and amortization of the adjusted assets or liabilities. Any changes to Noralta’s equity, including results of operations from August 31, 2017 through the date the Acquisition is completed, will also change the purchase accounting, which may include the recording of a lower or higher amount of goodwill. The final adjustments may be materially different from the pro forma financial statements presented in this proxy statement.

The pro forma financial statements are not intended to represent or be indicative of the consolidated results of operations or financial position that would have been reported had the Acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of the combined company following the Acquisition. The actual financial position and results of operations of the combined company following the Acquisition may significantly differ from the pro forma financial statements reflected herein due to a variety of factors.

The pro forma financial statements are based upon available information and certain assumptions that management believes are reasonable.

 

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CIVEO CORPORATION

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

SEPTEMBER 30, 2017

(U.S. Dollars In Thousands)

 

     Historical
Civeo
    Historical
Adjusted
Noralta
(Notes 2 and 6)
    Transaction
Adjustments
    Notes      Pro Forma  
ASSETS            

Current assets:

           

Cash and cash equivalents

   $ 54,002     $ —       $ 113,870       4(a)      $ —    
         (167,872     3     

Accounts receivable, net

     63,113       22,757       (162     4(c)        85,708  

Inventories

     4,857       2,047       —            6,904  

Prepaid expenses

     10,281       1,256       —            11,537  

Other current assets

     5,948       209       —            6,157  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current assets

     138,201       26,269       (54,164        110,306  

Property, plant and equipment, net

     756,138       125,575       59,951       4(b)        941,664  

Goodwill

         74,138       4(b)        74,138  

Intangible assets, net

     24,700       —         89,265       4(b)        113,965  

Other noncurrent assets

     10,711       —         —            10,711  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total assets

   $ 929,750     $ 151,844     $ 169,190        $ 1,250,784  
  

 

 

   

 

 

   

 

 

      

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY            

Current liabilities:

           

Accounts payable

   $ 23,893     $ 8,777     $ (162     4(c)      $ 32,508  

Accrued liabilities

     19,429       3,496       6,000       4(d)        28,925  

Income taxes

     407       —         —            407  

Current portion of long-term debt

     16,671       11,399       (11,314     4(e)        16,756  

Deferred revenue

     4,016       —         —            4,016  

Other current liabilities

     1,625       1,005       —            2,630  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current liabilities

     66,041       24,677       (5,476        85,242  

Long-term debt, less current maturities

     307,522       56,080       113,870       4(a)        421,395  
         (56,077     4(e)     

Deferred income taxes

     —         19,456       41,068       4(f)        60,524  

Other noncurrent liabilities

     30,358       6,877       (1,079     4(e)        36,156  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     403,921       107,090       92,306          603,317  

Preferred shares

     —         382,127       (382,127     4(e)        —    

Shareholders’ Equity:

           

Common shares

     —         —         —            —    

Additional paid-in capital

     1,382,160       —         72,468       4(b)        1,454,628  

Preferred equity

     —         —         55,170       4(b)        55,170  

Accumulated deficit

     (531,534     (337,373     450,597       4(e)        (537,534
         (6,000     4(d)     
         (113,224     4(b)     

Common shares held in treasury at cost

     (358     —         —            (358

Accumulated other comprehensive loss

     (324,563     —         —            (324,563
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Civeo Corporation shareholders’ equity

     525,705       (337,373     459,011          647,343  
  

 

 

   

 

 

   

 

 

      

 

 

 

Noncontrolling interest

     124       —         —            124  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total shareholders’ equity

     525,829       (337,373     459,011          647,467  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities and shareholders’ equity

   $ 929,750     $ 151,844     $ 169,190        $ 1,250,784  
  

 

 

   

 

 

   

 

 

      

 

 

 

See accompanying Notes to Unaudited Pro Forma Combined Financial Information.

 

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CIVEO CORPORATION

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2017

(U.S. Dollar In Thousands, Except Per Share Amounts)

 

     Historical
Civeo
    Historical
Adjusted
Noralta
(Notes 2 and 6)
    Transaction
Adjustments
    Notes      Pro
Forma
 

Revenues:

           

Service and other

   $ 274,438     $ 83,959     $ (1,113     5(a)      $ 357,284  

Product

     6,490       —         —            6,490  
  

 

 

   

 

 

   

 

 

      

 

 

 
     280,928       83,959       (1,113        363,774  

Costs and expenses:

           

Service and other costs

     179,044       43,852       (1,113     5(a)        221,783  

Product costs

     7,639       —         —            7,639  

Selling, general and administrative expenses

     44,141       5,836       (673     5(b)        49,304  

Depreciation and amortization expense

     97,083       10,899       (10,899     5(c)        109,910  
         12,827       5(c)     

Impairment expense

     4,360       —         —            4,360  

Other operating expense

     1,104       1,194       —            2,298  
  

 

 

   

 

 

   

 

 

      

 

 

 
     333,371       61,781       142          395,294  
  

 

 

   

 

 

   

 

 

      

 

 

 

Operating income (loss)

     (52,443     22,178       (1,255        (31,520

Interest expense to third-parties

     (15,697     (7,946     7,946       5(d)        (18,568
         (2,871     5(e)     

Gain (loss) on extinguishment of debt

     (842     993       (993     5(d)        (842

Interest income

     69       —         —            69  

Other income

     1,247       3,190       —            4,437  
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) before income taxes

     (67,666     18,415       2,827          (46,424

Income tax benefit (provision)

     9,875       (5,025     (763     5(f)        4,087  
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

     (57,791     13,390       2,064          (42,337

Less: Net income attributable to noncontrolling interest

     343       —         —            343  
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) attributable to Civeo Corporation

     (58,134     13,390       2,064          (42,680
  

 

 

   

 

 

   

 

 

      

 

 

 

Preferred share dividend

     —         —         (1,452     5(h)        (1,452

Net income (loss) attributable to Civeo common shareholders

   $ (58,134   $ 13,390     $ 612        $ (44,132
  

 

 

   

 

 

   

 

 

      

 

 

 

Per Share Data

           

Basic net loss attributable to Civeo Corporation common shareholders

   $ (0.46          $ (0.27

Diluted net loss attributable to Civeo Corporation common shareholders

   $ (0.46          $ (0.27

Weighted average number of common shares outstanding

           

Basic

     127,512         32,791       5(g)        160,303  

Diluted

     127,512         32,791       5(g)        160,303  

See accompanying Notes to Unaudited Pro Forma Combined Financial Information.

 

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CIVEO CORPORATION

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2016

(U.S. Dollar In Thousands, Except Per Share Amounts)

 

     Historical
Civeo
    Historical
Adjusted
Noralta
(Notes 2 and 6)
    Transaction
Adjustments
    Notes      Pro
Forma
 
     (Audited)                           

Revenues:

           

Service and other

   $ 378,585     $ 102,891     $ (187     5(a)      $ 481,289  

Product

     18,645       —         —            18,645  
  

 

 

   

 

 

   

 

 

      

 

 

 
     397,230       102,891       (187        499,934  

Costs and expenses:

           

Service and other costs

     238,037       52,553       (187     5(a)        290,403  

Product costs

     21,613       —         —            21,613  

Selling, general and administrative expenses

     55,297       7,409       —         5(b)        62,706  

Depreciation and amortization expense

     131,302       15,370       (15,370     5(c)        150,728  
         19,426       5(c)     

Impairment expense

     46,129       —         —            46,129  

Other operating expense

     612       2,384       —            2,996  
  

 

 

   

 

 

   

 

 

      

 

 

 
     492,990       77,716       3,869          574,575  
  

 

 

   

 

 

   

 

 

      

 

 

 

Operating income (loss)

     (95,760     25,175       (4,056        (74,641

Interest expense to third-parties

     (22,667     (10,992     10,992       5(d)        (26,495
         (3,828     5(e)     

Gain (loss) on extinguishment of debt

     (302     4,091       (4,091     5(d)        (302

Interest income

     152       —         —            152  

Other income (expense)

     2,645       10       —            2,655  
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) before income taxes

     (115,932     18,284       (982        (98,631

Income tax benefit (provision)

     20,105       (4,965     266       5(f)        15,406  
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

     (95,827     13,319       (717        (83,225

Less: Net income attributable to noncontrolling interest

     561       —         —            561  
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) attributable to Civeo Corporation

     (96,388     13,319       (717        (83,786
  

 

 

   

 

 

   

 

 

      

 

 

 

Preferred share dividend

     —         —         (1,936     5(h)        (1,936

Net income (loss) attributable to Civeo common shareholders

   $ (96,388   $ 13,319     $ (2,653      $ (85,722
  

 

 

   

 

 

   

 

 

      

 

 

 

Per Share Data

           

Basic net loss attributable to Civeo Corporation common shareholders

   $ (0.90          $ (0.61

Diluted net loss attributable to Civeo Corporation common shareholders

   $ (0.90          $ (0.61

Weighted average number of common shares outstanding

           

Basic

     107,024         32,791       5(g)        139,815  

Diluted

     107,024         32,791       5(g)        139,815  

See accompanying Notes to Unaudited Pro Forma Combined Financial Information.

 

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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

1. Description of Acquisition

On November 26, 2017, Civeo and Noralta entered into the Purchase Agreement, pursuant to which Civeo will acquire, directly or indirectly, all of the issued and outstanding shares of Noralta. The consideration for the Acquisition payable at closing will be an amount equal to (i) C$209,500,000 in cash, subject to customary adjustments for Noralta’s working capital, debt, cash and unpaid transaction expenses at closing, of which C$28,500,000 will be held in escrow by the Escrow Agent to support the sellers’ indemnification obligations under the Purchase Agreement, (ii) 32,790,868 Common Shares, of which 13,491,100 shares will be held in escrow by the Escrow Agent and released in three equal installments from escrow upon the satisfaction of certain conditions related to a customer contract remaining in place in June 2021, June 2022 and June 2023, and (iii) 9,679 Preferred Shares with an initial liquidation preference of US$96,790,000. Subject to obtaining regulatory approvals and Civeo shareholder approval of the share issuance proposal, and satisfying certain other closing conditions, it is anticipated that the Acquisition will be completed in the second quarter of 2018.

 

2. Basis of Presentation

The pro forma financial statements are based on Civeo’s and Noralta’s historical consolidated financial statements as adjusted to give pro forma effect to the acquisition of Noralta by Civeo. Civeo’s fiscal year-end is December 31, 2016, whereas Noralta’s fiscal year-end is May 31, 2017. The unaudited pro forma combined financial statements as at September 30, 2017 and for the nine months ended September 30, 2017 and for the year ended December 31, 2016 have been prepared using calculated historical results of Noralta (the “historical adjusted results”) that end within 93 days or less of the respective pro forma period. In order to calculate the historical adjusted results for Noralta in the unaudited pro forma combined statement of operations for the nine months ended September 30, 2017, the six months ended November 30, 2016 have been deducted from the twelve months ended May 31, 2017 and this calculated six month period has been added to the three months ended August 31, 2017. For the year ended December 31, 2016, the six months ended November 30, 2015 have been deducted from the twelve months ended May 31, 2016 and this calculated six month period has been added to the six months ended November 30, 2016. Noralta’s historical adjusted balance sheet included in the pro forma financial statements is as of August 31, 2017.

In addition, the historical financial information of Noralta is reported pursuant to ASPE and presented in Canadian dollars. The historical financial information of Civeo is reported pursuant to U.S. GAAP and presented in U.S. dollars. The historical adjusted results used in the preparation of the pro forma financial statements includes adjustments and reclassifications to convert the balance sheet and statements of operations of Noralta from ASPE to U.S. GAAP and to translate the financial statements from Canadian dollars to U.S. dollars (see Note 6).

The historical financial data has been adjusted to give pro forma effect to events that are (i) directly attributable to the Acquisition, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed, and have been prepared by Civeo management to illustrate the estimated effect of the Acquisition and certain other adjustments. The unaudited pro forma combined financial statements of operations for the nine months ended September 30, 2017 and the year ended December 31, 2016 give effect to the acquisition of Noralta as if it had occurred on January 1, 2016. The unaudited pro forma combined balance sheet as of September 30, 2017 gives effect to the acquisition of Noralta as if it has occurred on September 30, 2017.

Upon closing of the Acquisition, the combined company will own 100% of Noralta. Subsequent to the effective date of the Acquisition, any transactions occurring between Civeo and Noralta will be considered intercompany transactions and will be eliminated. Adjustments to reflect the elimination of balances and transactions between Civeo and Noralta as of and for the periods presented have been made in the pro forma financial statements.

 

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Significant Accounting Policies

The pro forma financial statements were prepared in accordance with Article 11 of SEC Regulation S-X. The accounting policies under U.S. GAAP used in the preparation of the pro forma financial statements are those set forth in Civeo’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which have been incorporated by reference herein.

The accounting policies of Noralta under ASPE are as described in Note 2 to its historical consolidated financial statements included in this proxy statement. The conversion of the Noralta historical consolidated financial statements from ASPE to U.S. GAAP and the translation from Canadian dollar amounts into U.S. dollars is discussed further in Note 6 below.

 

3. Calculation of Purchase Consideration

The total purchase consideration to be received by Noralta shareholders will be based on the fair value of the Common Shares and Preferred Shares deemed to be issued at the effective time of the Acquisition. The preliminary purchase consideration below reflects the estimated fair value of Common Shares issued, which is based on the price on December 15, 2017 of Civeo Common Shares of $2.21 per share. The preliminary purchase consideration below reflects the estimated fair value of Preferred Shares issued, which is valued at 57% of the initial liquidation preference of the Preferred Shares of US$96,790,000. The amount of total purchase consideration below is not necessarily indicative of the actual consideration that will be transferred at the effective time of the Acquisition to Noralta shareholders.

The preliminary estimated purchase consideration and estimated fair value of Noralta’s net assets acquired as if the Acquisition closed on December 15, 2017 is presented as follows:

 

(In thousands U.S. Dollars, except per share data)              

Common Shares to be issued

     32,791     

Common Share price as of December 15, 2017

   $ 2.21     
  

 

 

    

Common Share consideration

      $ 72,468  

Cash consideration

        167,872  

Preferred Share consideration

        55,170  
     

 

 

 

Estimated purchase consideration

      $ 295,510  
     

 

 

 

A $1 increase/decrease in the closing price of Civeo’s Common Shares would result in a US$32,791,000 increase/decrease in goodwill and additional paid-in-capital.

Preliminary Purchase Accounting

Under the acquisition method of accounting, Civeo will record the Noralta assets acquired and liabilities assumed at their respective fair value at the date of the completion of the Acquisition. The pro forma adjustments are preliminary based on estimates of the fair value and useful lives of the assets as of September 30, 2017, and have been prepared by Civeo management to illustrate the estimated effect of the Acquisition. The purchase accounting is dependent upon certain valuation and other studies that have not yet been completed. Accordingly, the preliminary purchase accounting is subject to further adjustments as additional information becomes available and as additional analyses and final valuations are conducted following the completion of the Acquisition. The final valuations could differ materially from the preliminary valuations presented below and, as such, no assurances can be provided regarding the preliminary purchase accounting.

 

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The following table summarizes the preliminary allocation of the purchase consideration to the identifiable assets acquired and liabilities assumed of Noralta, with the excess of the purchase consideration issued over the fair value of Noralta’s net assets recorded as goodwill:

 

(In thousands U.S. Dollars)       

Calculation of goodwill:

  

Estimated purchase consideration

   $ 295,510  
  

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

  

Historical book value of net assets

     44,754  

Plus: Liabilities not assumed

  

Current maturities of long-term debt

     4,808  

Long-term debt, net of current maturities

     56,077  

Bank indebtedness

     6,506  

Promissory notes payable

     1,079  
  

 

 

 

Fair value adjustments to assets acquired and liabilities assumed

     113,224  

Identifiable intangible assets

     89,265  

Tangible assets

     59,951  

Deferred tax liability

     (41,068
  

 

 

 

Goodwill

   $ 74,138  
  

 

 

 

 

(In thousands U.S. dollars, except estimated useful lives)    Estimated Useful
Life
     Amount  

Identifiable intangible assets

     

Noralta trade name

     1      $ 2,324  

Customer contracts

     20        86,941  
     

 

 

 
      $ 89,265  
     

 

 

 

 

4. Notes to Unaudited Pro Forma Combined Balance Sheet

 

  (a) Simultaneous with the closing of the Acquisition, Civeo expects to draw on its existing revolving credit facility (the “credit facility”) to finance a portion of the cash component of the purchase consideration. Adjustment represents the additional cash used and debt financing incurred by Civeo to fund the estimated purchase consideration.

 

  (b) Represents the net adjustment to Noralta assets acquired and liabilities assumed based on the estimated preliminary fair value of the assets acquired and liabilities assumed as discussed in Note 3.

 

  (c) Represents the elimination of accounts receivable and accounts payable in connection with historical services provided by Civeo to Noralta.

 

  (d) Represents an estimate of the future transaction related costs directly attributable to the Acquisition, including advisory and legal fees that are recorded as an adjustment to the unaudited pro forma combined balance sheet. These amounts will be expensed as incurred in the future and are not reflected in the unaudited pro forma combined statement of operations.

 

  (e) Represent the elimination of historical share capital and liabilities of Noralta not assumed upon completion of the Acquisition. Based on the terms of the Purchase Agreement, certain liabilities of Noralta were not assumed by Civeo. The pro forma financial statements have been adjusted to remove such liabilities.

 

  (f) Represents the net adjustment to deferred tax liabilities resulting from the preliminary purchase accounting adjustments to assets acquired utilizing the Canadian Federal statutory tax rate of 27%.

 

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5. Notes to Unaudited Pro Forma Combined Statements of Operations

 

  (a) Represents the elimination of revenue and expenses in connection with historical services provided by Civeo to Noralta.

 

  (b) Represents the elimination of transaction related expenses that were directly attributable to the Acquisition, including advisory and legal fees. There were no such expenditures incurred in the year ended December 31, 2016. For pro forma purposes, these expenditures have been removed from the unaudited pro forma combined statements of operations, as they are non-recurring transaction related expenses.

 

  (c) Represents the elimination of Noralta’s historical depreciation and amortization expense, and the recognition of depreciation and amortization expense based on the fair value of the assets acquired (see Note 4 (b)) which will be amortized over the remaining useful life of the asset using Civeo’s useful life assumption for the respective asset classes.

 

  (d) Represents the elimination of Noralta’s historical interest expense and gain on extinguishment of debt. Based on the terms of the asset purchase agreement, none of Noralta’s long-term debt was assumed by Civeo in the Acquisition.

 

  (e) Represents the adjustment to record interest expense related to additional financing required to fund the cash component of the purchase consideration. Simultaneous with the closing of the Acquisition, Civeo expects to draw on its credit facility to finance a portion of the cash component of the purchase consideration. To reflect this additional financing, there is an adjustment to include additional interest expense calculated using a rate of 5.0% on the additional draw against the credit facility, less a reduction related to the undrawn commitment fee contained within the credit facility calculated using a rate of 0.79%. Each 0.125% change in assumed interest rates for our credit facility would change pro forma interest expense by approximately $0.1 million for both the nine months ended September 30, 2017 and for the year ended December 31, 2016.

 

  (f) Represents the tax effect of preliminary purchase accounting adjustments utilizing the Canadian statutory tax rate of 27%.

 

  (g) Represents an adjustment to the weighted average shares outstanding for Civeo to illustrate the number of Common Shares that are expected to be issued to consummate the Acquisition and assumes no conversion of the Preferred Shares as such conversion would be anti-dilutive.

 

  (h) Represents the adjustment to record dividends related to the Preferred Shares calculated using the 2% annual dividend rate and the initial liquidation preference.

 

6. Adjustments to Noralta Historical Financial Statements to Conform to U.S. GAAP

Noralta’s historical financial statements have been prepared in accordance with ASPE, which differs in certain material respects from U.S. GAAP. In order to prepare pro forma financial statements, Noralta’s historical financial statements have been adjusted to reflect Noralta’s consolidated statements of operations and statement of financial position on a U.S. GAAP basis.

 

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NORALTA LODGE LTD.

UNAUDITED HISTORICAL ADJUSTED BALANCE SHEET

AUGUST 31, 2017

(In Thousands U.S. Dollars (“USD”) and Canadian Dollars (“CAD”) )

 

    Historical
Noralta
    Reclassification
Adjustments
(Note 6(a))
    ASPE to
US GAAP
Conversion
Adjustments
    Notes     Historical
Adjusted
Noralta
    Historical
Adjusted
Noralta
(Note
6(c))
 
    CAD     CAD     CAD           CAD     USD  
ASSETS            

Current assets:

           

Accounts receivable

  $ 27,763     $ (27,763   $ —         $ —       $ —    

Trade and other receivables

    —         27,763       637       6(b)i       28,400       22,757  

Income taxes recoverable

    260       (260     —           —         —    

Inventory

    2,554       —         —           2,554       2,047  

Prepaid expenses and deposits

    1,568       (1,568     —           —         —    

Prepaid expenses

    —         1,568       —           1,568       1,256  

Advances to shareholder

    5,668       (5,668     —           —         —    

Other current assets

    —         5,928       (5,668     6(b)ii       260       209  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total current assets

    37,813       —         (5,031       32,782       26,269  

Property and equipment

    161,393       182       (4,861     6(b)iii       156,714       125,575  

Intangible assets

    182       (182     —           —         —    
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total assets

  $ 199,388     $ —       $ (9,892     $ 189,496     $ 151,844  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

           

Current liabilities:

           

Bank indebtedness

  $ 9,701     $ (9,701   $ —         $ —       $ —    

Accounts payable and accrued liabilities

    13,097       (13,097     —           —         —    

Accounts payable

    —         9,847       1,106       6(b)i       10,953       8,777  

Accrued liabilities

    —         3,250       1,113       6(b)i       4,363       3,496  

Obligations under capital lease

    106       (106     —           —         —    

Long-term debt

    6,000       (6,000     —           —         —    

Current portion of long-term debt

    —         15,807       (1,582     6(b)i       14,225       11,399  

Asset retirement obligations

    1,254       (1,254     —           —         —    

Other current liabilities

    —         1,254       —           1,254       1,005  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total current liabilities

    30,158       —         637         30,795       24,677  

Obligations under capital lease

    4       (4     —           —         —    

Long-term debt

    69,982       (69,982     —           —         —    

Long-term debt, less current maturities

    —         69,986       —           69,986       56,080  

Asset retirement obligations

    7,776       (7,776     —           —         —    

Promissory note payable

    1,346       (1,346     —           —         —    

Unearned revenue

    4,968       (4,968     —           —         —    

Future income taxes

    24,106       (24,106     —           —         —    

Deferred income taxes

    —         24,106       175       6(b)iii       24,281       19,456  

Other noncurrent liabilities

    —         14,090       (5,508     6(b)iii       8,582       6,877  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 
    108,182       —         (5,333       102,849       82,413  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total liabilities

    138,340       —         (4,696       133,644       107,090  

Preferred shares

    —         —         476,884       6(b)iv       476,884       382,127  

Shareholders’ equity:

           

Preferred shares

    9,592       —         (9,592     6(b)(iv)       —         —    

Retained earnings

    51,456       (51,456     —           —         —    

Accumulated deficit

    —         51,456       (472,488    


6(b)i,
6(b)ii,
6(b)iii,
6(b)iv
 
 
 
 
    (421,032     (337,373
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total shareholders’ equity

    61,048       —         (482,080       (421,032     (337,373
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total liabilities and shareholders’ equity

  $ 199,388     $ —       $ (9,892     $ 189,496     $ 151,844  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

 

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NORALTA LODGE LTD.

UNAUDITED HISTORICAL ADJUSTED STATEMENT OF OPERATIONS

NINE MONTHS ENDED AUGUST 31, 2017

(In Thousands U.S. Dollars (“USD”) and Canadian Dollars (“CAD”) )

 

     Historical
Noralta
    Reclassification
Adjustments
(Note 6(a))
    ASPE to
US GAAP
Conversion
Adjustments
    Notes    Historical
Adjusted
Noralta
    Historical
Adjusted
Noralta
(Note
6(c))
 
     CAD     CAD     CAD          CAD     USD  

Revenue:

   $ 108,556     $ (108,556   $ —          $ —       $ —    

Service and other

     —         108,556       2,063     6(b)i      110,619       83,959  

Costs and expenses:

             

Service and other costs

     —         55,713       2,063     6(b)i      57,776       43,852  

Wages and benefits

     21,371       (21,371     —            —         —    

Groceries

     16,213       (16,213     —            —         —    

Telephone and utilities

     7,324       (7,324     —            —         —    

Rent

     2,498       (2,498     —            —         —    

Contracted Services

     2,513       (2,513     —            —         —    

Aircraft and travel

     1,368       (1,368     —            —         —    

Repairs and maintenance

     1,252       (1,252     —            —         —    

Property taxes

     1,646       (1,646     —            —         —    

Lodge supplies

     779       (779     —            —         —    

Insurance

     749       (749     —            —         —    

Professional Fees

     100       (100     —            —         —    

Selling, general and admin expenses

     —         7,689       —            7,689       5,836  
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 
     55,813       7,589       2,063          65,465       49,688  
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 
     52,743       (7,589     —            45,154       34,271  

General and administrative expenses

     7,589       (7,589     —            —         —    
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 
     45,154       —         —            45,154       34,271  
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

Amortization

     14,776       (14,776     —            —         —    

Depreciation and amortization expense

     —         14,776       (417   6(b)iii      14,359       10,899  

Reorganization cost

     1,284       (1,284     —            —         —    

Mobilization and demobilization costs

     82       (82     —            —         —    

Other operating expense

     —         1,544       29     6(b)iii      1,573       1,194  

Interest

     10,469       (10,469     —            —         —    
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 
     26,611       (10,291     (388        15,932       12,093  
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

Operating income

     18,543       10,291       388          29,222       22,178  
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

Interest expense to third-parties

     —         (10,469     —            (10,469     (7,946

Insurance proceeds

     3,320       (3,320     —            —         —    

Accretion

     (178     178       —            —         —    

Gain on repayment of long-term debt

     1,307       (1,307     —            —         —    

Gain (loss) on extinguishment of debt

     —         1,307       —            1,307       993  

Gain on disposal of property and equipment

     884       (884     —            —         —    

Loss on foreign exchange

     (1     1       —            —         —    

Other income

     —         4,203       —            4,203       3,190  
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 
     5,688       10,291       —            (4,959     (3,763
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

Income before income taxes

     23,875       —         388          24,263       18,415  
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

Current

     5,107       (5,107     —            —         —    

Future

     1,409       (1,409     —            —         —    

Income tax benefit (provision)

     —         6,516       105     6(b)iii      6,621       5,025  
  

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 
     6,516       —         105          6,621       5,025