SCF Acquisition Corporation - MRRS Decision

Headnote

Mutual Reliance Review Systemfor Exemptive Relief Applications - Employment agreements enteredinto between offeror and key employees of the target who arealso selling securityholders of the target - Agreements reflectcommercially reasonable terms and negotiated at arm's length- Agreements include severance entitlements and opportunityto invest specified amounts in target following completion ofthe bid - Decision made that agreements being entered into forreasons other than to increase the value of the considerationpaid to the selling securityholders for their shares and thatsuch agreements may be entered into notwithstanding the prohibitionon collateral benefits.

Applicable Statutory Provisions

Securities Act, R.S.O. 1990,c. S.5, as amended, ss. 97 and 104(2)(a).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ALBERTA, ONTARIO, AND QUEBEC

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

SCF ACQUISITION CORPORATION

MRRS DECISION DOCUMENT

1. WHEREAS the local securitiesregulatory authority or regulator (the "Decision Makers")in Alberta, Ontario, and Québec (the "Jurisdictions")has received an application (the "Application")from SCF Acquisition Corporation (the "Applicant"),a wholly-owned subsidiary of SCF IV, L.P. ("SCF"),in connection with its offer (the "Offer"), by wayof a formal take-over bid, to purchase all of the outstandingcommon shares (the "IPS Shares") in the capitalof Integrated Production Services Ltd. ("IPS") thatSCF does not already own, for a decision under the securitieslegislation of the Jurisdictions (the "Legislation")that the Applicant be exempt from the prohibition containedin the Legislation that, where an applicant intends to makea take-over bid, neither the applicant nor any person actingjointly or in concert with the applicant shall enter intoany collateral agreement, commitment or understanding withany security holder of the offeree issuer that has the effectof providing to that security holder a consideration of greatervalue than that offered to other holders of the same classof securities (the "Prohibition on Collateral Agreements");

2. AND WHEREAS under the MutualReliance Review System for Exemptive Relief Applications (the"System"), the Alberta Securities Commission isthe principal regulator for the Application;

3. AND WHEREAS the Applicanthas represented to the Decision Makers that:

3.1 IPS was amalgamatedunder the Business Corporations Act (Alberta) (the"ABCA") on April 5, 2000 and is a reporting issuerin British Columbia, Alberta and Ontario and is not in defaultof any of the requirements of the Legislation;

3.2 the IPS Shares are listedand posted for trading on The Toronto Stock Exchange andas at May 25, 2002, there were 25,618,889 IPS Shares outstanding(28,943,558 calculated on a fully-diluted basis);

3.3 as at June 24, 2002,SCF owns 11,111,000 IPS Shares, or approximately 43% ofthe outstanding IPS Shares;

3.4 SCF is a limited partnershipformed under the laws of the State of Delaware with itsprincipal executive offices located in Houston, Texas;

3.5 SCF is not, and hasno current intention of becoming, a reporting issuer inany jurisdiction in Canada;

3.6 the Applicant was incorporatedunder the ABCA for the sole purpose of making the Offerand is not, nor does it have any current intention of becoming,a reporting issuer in any jurisdiction in Canada;

3.7 the Applicant's headoffice is located in Calgary, Alberta;

3.8 the authorized sharecapital of the Applicant is comprised of an unlimited numberof common shares, all of which are owned by SCF;

3.9 all of the directorsand officers of the Applicant are managing directors ofSCF;

3.10 on May 25, and May26, 2002, the Applicant mailed a take-over bid and circularwith respect to the Offer;

3.11 on May 25, 2002, SCFand IPS entered into a pre-acquisition agreement with respectto the Offer (the "Pre-Acquisition Agreement")under which SCF agreed, subject to the satisfaction of certainconditions, to make the Offer;

3.12 SCF and IPS negotiatedan offering price of $3.05 per IPS Share for the Offer whichrepresents a premium of 38% above the weighted average tradingprice of the IPS Shares over the 30 trading days prior tothe announcement of SCF's intention to make an offer onMarch 14, 2002;

3.13 all of the directorsand officers of IPS (the "Executives") who holdIPS Shares have agreed to accept the Offer and deposit upto an aggregate 3,070,977 IPS Shares or approximately 10.6%of the outstanding IPS Shares (calculated on a fully-dilutedbasis) to the Offer, subject to the right to withdraw suchIPS Shares in certain events;

3.14 IPS, with the approvalof the Applicant, has entered into employment agreements(the "Executive Employment Agreements") with theExecutives dated May 15, 2002;

3.15 the Executives' executionof the Executive Employment Agreements was a condition toSCF and IPS entering into the Pre-Acquisition Agreement.SCF believes that without the continued employment of theExecutives, there would be a material reduction in the valueof IPS to SCF;

3.16 the current positionsof the Executives (which will remain the same upon completionof the Offer, as will their duties and responsibilities)and the reasons why the continued employment of each ofthe Executives following completion of the Offer is importantto SCF, are:

3.16.1 David Yager isPresident and is integral to the business of the firmin the areas of industry knowledge, customer relationships,and knowledge and experience with respect to IPS' productsand services;

3.16.2 Barry Lee is ExecutiveVice-President and Chief Operating Officer, and will beimportant because of his familiarity with IPS' equipment,operations, personnel and customer relationships;

3.16.3 James Hill is IPS'Chief Financial Officer and his extensive experience inall financial aspects of the oilfield service industrymakes him important to the continuity of IPS' cost control,cash management, financial reporting and tax reportingand filing;

3.16.4 Mark Stormoen isVice-President, Production Testing Services and his 20years of domestic and international well testing experiencegive IPS extensive technical and sales experience in thegas well testing service area;

3.16.5 Bob Duval is Vice-President,E-Line Services, and has over 20 years of wireline experiencethat gives him extensive knowledge of IPS' E-Line products,employees and customer base;

3.16.6 Bob Copeland isVice-President, Business Development, with 25 years ofindustry experience, leads a number of strategic initiativesto develop IPS' business;

3.16.7 Richard Ironsideis Managing Director of Premier Sea & Land Pte. Ltd.,and has thirty years of experience in Southeast Asia thatprovides IPS with extensive knowledge of foreign operationsand clients;

3.17 the Executive EmploymentAgreements formalized the employment arrangements betweenIPS and the Executives that had been agreed to by the IPSBoard at a meeting of the IPS Board held on December 7,2001;

3.18 under the ExecutiveEmployment Agreements, each Executive will maintain hisposition and base salary with IPS;

3.19 the purpose of enteringinto the Executive Employment Agreements is to provide forcontinuity of senior management and not for the purposeof providing the Executives with greater consideration fortheir IPS Shares than the consideration that may be receivedunder the Offer by holders of IPS Shares other than theExecutives;

3.20 IPS, with the approvalof the Applicant, has entered into letter agreements (the"Continued Employment Agreements") with each Executivewho signed an Executive Employment Agreement;

3.21 under the ContinuedEmployment Agreements, the Executives will, after the Applicanthas completed the Offer:

3.21.1 have the opportunityto invest, to a specified amount at and a cost of $3.05per IPS Share, in IPS; and

3.21.2 receive optionsto acquire IPS Shares from treasury at an exercise priceof $3.05 per IPS Share, granted on substantially the sameterms as IPS' current stock option plan - any future optiongrants will be made at the discretion of the IPS Board;

3.22 the purpose of enteringinto the Continued Employment Agreements is to retain experiencedmanagement and provide incentives to facilitate the growthof IPS and not for the purpose of providing the Executiveswith greater consideration for their IPS Shares than theconsideration that may be received under the Offer by holdersof IPS Shares other than the Executives;

3.23 the terms of the ExecutiveEmployment Agreement and the Continued Employment Agreementsare consistent with industry standards and are commerciallyreasonable and supportable;

3.24 Doug Robinson, theChairman of the Board and Chief Executive Officer of IPS:

3.24.1 currently holds2.3% of the IPS Shares (or 3.7% of the IPS Shares notalready owned by SCF) on a fully-diluted basis;

3.24.2 has entered intoa severance agreement (the "Severance Agreement")with IPS regarding the termination of his employment uponSCF taking up and paying for IPS Shares under the Offer;

3.24.3 will provide consultingservices under a consulting agreement (the "ConsultingArrangement") to IPS for a period of six months aftertermination for a fee of $5,000 per month; and

3.24.4 has also enteredinto an agreement (the "Robinson Agreement")under which he will be provided with the opportunity toacquire IPS Shares from treasury on the same terms asthe Executives;

3.25 the terms of Mr. Robinson'sseverance under the Severance Agreement are consistent withindustry standards with regard to his position, experienceand length of service and the fee for Mr. Robinson's consultingservices under the Consulting Arrangement is commensuratewith, or lower than, the entitlements of similarly experiencedconsultants in Mr. Robinson's peer group;

3.26 the purpose of enteringinto the Consulting Arrangement and the Robinson Agreementis to facilitate the successful completion of the privatizationof IPS and preserve the value of IPS and not for the purposeof providing Mr. Robinson with greater consideration forhis IPS Shares than the consideration that may be receivedunder the Offer by holders of IPS Shares other than Mr.Robinson;

3.27 SCF, IPS and HSBC Capital(Canada) Inc. ("HSBC") have entered into an agreementin connection with the Offer regarding the restructuringof a $5,000,000 principal amount 9% convertible debentureissued to HSBC (the "HSBC Debenture") on June30, 2000, the principal amount of which is convertible atany time on or before May 31, 2005, into IPS Shares at aconversion price equal to $2.70 per IPS Share (the "TermSheet");

3.28 the provisions of theHSBC Debenture are such that the Offer cannot be consummatedwithout triggering an event of default;

3.29 the Term Sheet providesthat before the expiry time for the Offer, IPS and HSBCwill use their diligent commercially reasonable effortsto negotiate and enter into an agreement to amend the termsof the HSBC Debenture (the "HSBC Debenture AmendingAgreement") and that IPS, SCF and HSBC will also usesuch efforts to negotiate and enter into a satisfactoryshareholders' agreement relating to the relationship betweenthe parties after the completion of the Offer in the eventthat the HSBC Debenture is converted into IPS Shares byHSBC;

3.30 the HSBC DebentureAmending Agreement is conditional on receiving the approvalof all necessary regulatory authorities, including receiptof an order of the appropriate securities commissions approvingthe HSBC Debenture Amending Agreement;

3.31 SCF, IPS and HSBC havenot yet entered into either the HSBC Debenture AmendingAgreement and the Offer is conditional on these agreementsbeing completed on a basis that is satisfactory to SCF;

3.32 the purpose of theTerm Sheet and the HSBC Debenture Amending Agreement isto:

3.32.1 eliminate the termrenewal options which represent a 50% reduction in thepotential life of the HSBC Debenture, which otherwisemay impede future financing activities of IPS;

3.32.2 provide a pre-paymentprivilege to SCF, who possesses greater access to capitalthan IPS, with the opportunity to eliminate a 9% interestrate debt obligation, which is commercially reasonablegiven the relatively high rate;

3.32.3 remove the existingcovenants and approval rights under the HSBC Debentureto ensure that the completion of the Offer will not triggeran event of default and that IPS' operations are not undulyrestricted; and

3.32.4 subordinate theHSBC Debenture to any current and/or future arm's lengthdebt enabling IPS to seek future debt financing, shouldit be required;

and not for the purposeof providing HSBC with greater consideration for their deemedownership of IPS Shares than the consideration that maybe received under the Offer by shareholders other than HSBC;

4. AND WHEREAS under the Systemthis MRRS Decision Document evidences the decision of eachDecision Maker (collectively, the "Decision");

5. AND WHEREAS each of theDecision Makers is satisfied that the test contained in theLegislation that provides each Decision Maker with the jurisdictionto make the Decision has been met;

6. THE DECISION of the DecisionMakers under the Legislation is that the Executive EmploymentAgreements, the Continued Employment Agreements, the ConsultingArrangement, the Robinson Agreement, the Severance Agreementand the HSBC Debenture Amending Agreement are made for purposesother than to increase the value of the consideration paidto the Executives, Doug Robinson and HSBC for their IPS Sharesand may be entered into despite the Prohibition on CollateralAgreements.

July 2, 2002.

"Eric T. Spink"                    "ThomasG. Cooke"