Enerflex Systems Income Fund

Enerflex Systems Income Fund

July 26, 2006 23:59 ET

Enerflex Announces Proposal for Reorganization Into Income Trust

CALGARY--(CCNMatthews - July 26) - Enerflex Systems Ltd. ("Enerflex") (TSX:EFX) announced today that its Board of Directors has unanimously approved proceeding with the reorganization of Enerflex into an income trust (the "Trust"), subject to shareholder approval.

The proposed reorganization is the foundation of a plan to enhance shareholder value through the distribution of a portion of cash flow generated by the business of Enerflex on a tax-effective basis and to develop a platform for growth. The reorganization will be accomplished by way of a plan of arrangement under the Canada Business Corporations Act that is subject to the approval of at least 66 2/3% of the votes cast by the shareholders of Enerflex at a special meeting to be held in September 2006. Under the terms of the proposed reorganization, Enerflex shareholders will receive one unit (a "unit") of the Trust for each Enerflex common share held.

The current business and operations of Enerflex will be unaffected by the reorganization and will continue to be performed by the current management and employees of Enerflex.

The Board of Directors of Enerflex established a special committee (the "Special Committee") consisting of Mr. Robert Hodgins, Mr. Geoffrey Hyland and Ms. Nancy Laird to consider the possibility of reorganizing Enerflex into an income trust. Following deliberations and consultations with financial, legal and tax advisors, the Special Committee unanimously recommended to the Board of Directors that Enerflex proceed with the reorganization into an income trust.

The Board of Directors believes that the reorganization is in the best interest of Enerflex and its shareholders. In establishing the terms of the reorganization and in making its recommendation, the Board of Directors considered the following factors:

- the recommendation of the Special Committee and the advice of

financial, legal and tax advisors;

- Enerflex's existing businesses generate substantial levels of free

cash flow;

- Enerflex has demonstrated the ability to grow its business in a

capital efficient manner and without significant reliance on the

equity markets while at the same time maintaining a strong balance

sheet. By retaining a portion of its free cash flow for growth

opportunities, Enerflex anticipates a continuation of this track

record of efficient growth;

- Enerflex has a strong market position and a stable and experienced

management team;

- a trust structure provides a tax efficient structure for providing

cash distributions to unitholders and, as Enerflex is currently cash

taxable, the trust structure should reduce the income tax liability,

thereby increasing the amount of cash available for distribution to

unitholders and for future capital expenditures without unduly

compromising the ability of the Trust to continue to internally fund

future growth opportunities;

- units of the Trust are expected to be valued in more favourable terms

than are the common shares of Enerflex;

- with the exchange of Enerflex common shares for units, unitholders

are expected to benefit from increased liquidity; and

- the Trust is expected to have improved access to capital markets to

finance acquisitions which would further enhance unit value.

For Enerflex shareholders resident in Canada, the conversion of Enerflex common shares into units will result in a disposition giving rise to a gain or loss for tax purposes. Consideration is being given to providing Enerflex shareholders with an exchangeable share alternative which would permit shareholders to elect to receive, at their option and subject to a maximum number of shares, shares of Enerflex exchangeable into units of the Trust. The exchangeable shares would permit electing shareholders to defer all or part of the income tax consequences of the arrangement until the disposition of the exchangeable shares for units of the Trust. Current and potential shareholders are encouraged to seek independent tax advice in respect of the consequences to them of the proposed reorganization.

Management expects that the units will be eligible for RRSPs, RRIFs and registered plans.

RBC Capital Markets ("RBC") is providing financial advisory services to the Special Committee and the Board of Directors in connection with the proposed reorganization. RBC has provided the Special Committee and the Board of Directors of Enerflex with an opinion that the consideration under the plan of arrangement is fair from a financial point of view to Enerflex shareholders.

An information circular describing the reorganization and detailing the proposed plan of arrangement will be mailed to Enerflex's shareholders in August for the purpose of obtaining shareholder approval. The information circular will be available on the internet at www.sedar.com and Enerflex's website at www.enerflex.com.

Enerflex Systems Ltd. is a leading Canadian supplier of products and services to the global oil and gas production industry. Our core expertise lies between the wellhead and the pipeline. Enerflex provides natural gas compression, power generation and process equipment for sale, rent or lease, hydrocarbon production and processing facilities, electrical, instrumentation and controls services and a comprehensive package of field maintenance and contracting capabilities. Through our ability to provide these products and services in an integrated manner, or as stand-alone offerings, Enerflex offers its customers a unique value proposition.

Headquartered in Calgary, Canada, Enerflex has approximately 2,700 employees. Enerflex, its subsidiaries, interests in affiliates and joint-ventures, operate in Canada, Australia, the Netherlands, the United States, Germany, Pakistan, Egypt and Indonesia. Enerflex's common shares trade on the Toronto Stock Exchange under the symbol "EFX".

Forward-Looking Statements

Certain information contained herein constitutes forward-looking information under applicable securities laws. All statements, other than statements of historical fact, which address activities, events or developments that we expect or anticipate may or will occur in the future, are forward-looking information. Forward-looking information typically contains statements with words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "potential", "targeting", "intend", "could", "might", "should", "believe" or similar words suggesting future outcomes or outlook. The following discussion is intended to identify certain factors, although not necessarily all factors, which could cause future outcomes to differ materially from those set forth in the forward-looking information. The risks and uncertainties that may affect the operations, performance, development and results of Enerflex's businesses include, but are not limited to, the following factors: the impact of general economic conditions; industry conditions, including the adoption of new environmental and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and gas prices; oil and gas product supply and demand; risks inherent in Enerflex's ability to generate sufficient cash flow from operations to meet its current and future obligations; increased competition; the lack of availability of qualified personnel or management; labor unrest; fluctuations in the foreign exchange or interest rates; stock market volatility, opportunities available to or pursued by Enerflex and other factors, many of which are beyond the control of Enerflex. The reader is cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate by Enerflex at the time of preparation, may prove to be incorrect or may not occur. Accordingly, readers are cautioned that the actual results achieved will vary from the information provided herein and the variations may be material. Readers are also cautioned that the foregoing list of factors and risks is not exhaustive. Additional information on these and other risks, uncertainties and factors that could affect Enerflex's operations or financial results are included in our filings with the securities commissions or similar authorities in each of the provinces of Canada, as may be updated from time to time. There is no representation by Enerflex that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking statements contained herein are made as of the date hereof, and Enerflex does not undertake any obligation to update publicly or to revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by law. Any forward-looking information contained herein is expressly qualified by this cautionary statement.

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