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There Are 26 Million Reasons to Vote Against the Management Transaction

  • Wilks reminds Calfrac shareholders to vote AGAINST the Management Transaction
  • $0.18 per Calfrac share under Wilks’ Premium Offer is far superior to $0.03 per Calfrac share under the insider-led Management Transaction.
  • Calfrac’s share price would need to improve by approx. 575% for the Management Transaction to deliver Shareholders the same value as the Wilks Premium Offer
  • The proxy deadline for the BLUE proxy is September 14, 2020 at 5pm MST.
  • Get the FACTS at www.afaircalfrac.com.

CISCO, Texas, Sept. 11, 2020 /CNW/ – Wilks Brothers, LLC (“Wilks“) reminds Shareholders of Calfrac Well Services Ltd. (“Calfrac“) (TSX: CFW) to vote AGAINST Calfrac’s insider-led Recapitalization Transaction (the “Management Transaction“) in advance of the special meeting of Shareholders to be held on September 17, 2020 (the “Meeting“) by using ONLY their BLUE proxy form. The proxy deadline for the BLUE proxy is September 14, 2020 at 5pm MST.

The Management Transaction will not solve Calfrac’s problems and Shareholders will pay the price:

The Management Transaction is an extraordinarily bad deal for Shareholders and they should vote AGAINST it on that basis alone. However, it also is a bad deal for Calfrac because it does not solve Calfrac’s over-leverage problem or position it for future success:

  • It actually increases the amount of Calfrac’s secured debt;
  • It leaves Calfrac with no less than $349 million in debt and $31 million in annual debt service requirements;
  • It massively dilutes the current Shareholders and delivers control of Calfrac to a small group of self-selected creditors and insiders;
  • It will not provide Calfrac with the capital it needs to grow or even maintain its business – of the $60 million in “new” money that is coming into Calfrac, $45 million of it is to be used to reduce bank debt;
  • The entrenched Board and management have provided essentially no information as to how they propose that an overleveraged and undercapitalized Calfrac will compete in an extraordinarily challenging environment for energy service companies; and
  • G2S2 Capital, who will be the largest shareholder of Calfrac if the Management Transaction is implemented, is a significant shareholder of one of Calfrac’s principal competitors, Trican Well Services Ltd.

The Management Transaction is another in a continuing series of half-baked and ultimately unsuccessful debt restructurings of major companies under the Canada Business Corporations Act in recent years. Each of Delphi Energy Corp., Bellatrix Exploration Ltd., Connacher Oil and Gas Limited, Nemaska Lithium Inc., and Banro Corporation all completed CBCA debt restructurings only to end up filing for protection from their creditors under the Companies Creditors Arrangement Act (“CCAA”) within a very short period of time afterwards. What small value the shareholders retained was completely eliminated in the CCAA process.

Wilks believes that if the Management Transaction is approved, Calfrac will soon be on that same path and its current Shareholders will pay the price.

Wilks offers superior solutions:

On August 4, 2020, Wilks proposed a comprehensive restructuring plan to Calfrac. The “Superior Alternative Proposal” deals with every level of Calfrac’s capital structure, provides superior recoveries to Shareholders and results in a significantly de-levered Calfrac ($95 million in debt, $5 million in annual debt service requirements).

Calfrac rejected the Superior Alternative Proposal on the basis that it would not be approved by the self-interested group of creditors and insiders that stand to receive substantial benefits from the Management Transaction that are not available to Shareholders. Shareholders were then threatened with a CCAA filing and no recovery if the Management Transaction did not proceed.

To provide Shareholders with an unobstructed path to a premium recovery, Wilks launched a formal take-over bid on September 9, 2020 to acquire all of Calfrac’s common shares for $0.18 per share (the “Premium Offer“), a 20% premium to the market price of the Calfrac Shares on September 1, 2020, the last trading day prior to the date the intention to make the Offer was announced, and an overwhelming premium to the value per Calfrac Share that Shareholders would receive if the Management Transaction were implemented.1

The Premium Offer provides a highly attractive cash recovery to Shareholders even if Calfrac makes good on its implied threat to commence proceedings under the CCAA should the Management Transaction not proceed.

Under the terms of the Premium Offer, Shareholder recovery will NOT be threatened by a CCAA filing. The Premium Offer will nullify the threats made to Shareholders by the entrenched Board and management of Calfrac by guaranteeing a premium-to-market recovery to Shareholders.

Shareholders have a very clear choice:

  • Vote AGAINST the Management Transaction and preserve the right to benefit from the premium recovery of $0.18 per Calfrac Share under Wilks’ Premium Offer

OR

  • Support the Management Transaction and receive $0.03 per Calfrac Share under the Management Transaction1, which may ultimately be wiped out;

The conflict-riddled Management Transaction is simply no match for the Premium Offer. In order to match the Premium Offer, Calfrac’s share price would require an improvement of ~575% over where Management has disclosed it expects Calfrac’s shares to trade upon completion of their highly dilutive proposal. Thus, Shareholders’ recovery under the Management Transaction would match the Premium Offer only if the total enterprise value of Calfrac were to reach $1 billion2, far in excess of the less than $400 million enterprise value assigned by Management to Calfrac in their proposal. The prospect for such a recovery under the Management Transaction would be highly uncertain, years away, and realistically only among the most optimistic scenarios for a recovery to Shareholders under the Management Transaction.

In contrast, the Premium Offer of $0.18 per Calfrac share would provide an immediate floor for recovery to Shareholders: If finally accepted once the Management Transaction has been defeated, our Superior Alternative Proposal would provide even greater upside potential for Shareholders.




1

Based on the Company’s disclosure in the July 13, 2020 Recapitalization Transaction Announcement Presentation of a $50 million Plan Equity Value, Existing Shareholders’ 7.8% pro forma share ownership, and 1,877 million total common shares outstanding (pre-dilution).

2

$0.18 × 4,128mm shares + $295mm = $1,038mm. Shares outstanding and pro forma debt are sourced from the Company’s July 13, 2020 Recapitalization Transaction Announcement Presentation.

Leading independent proxy advisor recommends voting AGAINST and other advisors and analysts agree that the insider deal is conflicted, excessively dilutive to Shareholders, and inferior to Wilks’ solutions:

Don’t just take our word for it. Leading independent proxy advisory firm ISS agrees that Wilks’ Superior Alternative Proposal, backstopped by the Premium Offer, is in the best interests of Shareholders:

“Given that Wilks’ debt reduction plan offers superior value to shareholders and its premium takeover bid mitigates the risk associated with renewed debtholder negotiations, shareholders are advised to use the dissident (blue) proxy card to vote AGAINST management’s proposed Recapitalization Transaction”. – Institutional Shareholder Services Inc. (“ISS”), September 5, 2020

Another proxy advisory firm also has expressed reservations about the conflicts in the Management Transaction and the excessive dilution of the Management Transaction on Shareholders:

“To be sure, we share certain of Wilks’ concerns regarding the participation of the Company’s chairman in the proposed transaction via his personal holding company, the seemingly favorable treatment of a select group of investors (generally creditors) at the expense of common shareholders and the degree to which current common shareholders will see their interests diluted upon completion of the transaction and conversion of the 1.5 Lien Notes”. – Glass Lewis & Co., September 4, 2020

Other independent analysts similarly agree:

“In our view, the new Wilks Bros restructuring proposal is unambiguously superior to the original proposal for equity holders and 2nd lien noteholders.” – Raymond James Ltd., August 4, 2020

“We believe that should the Wilks proposal succeed, Calfrac’s survivability would be materially improved and have raised our target from zero to $0.15 (13.5x 2021 EV/EBITDA) and rating to Market Perform from Reduce on the potential success of the deal and deleveraging of the Company.” – Cormark Securities Inc., August 5, 2020

Your vote is necessary to STOP the Management Transaction. Vote BLUE Today.

Shareholders can only preserve their right to benefit from the premium recovery under the Premium Offer by first defeating the Shareholder vote on the Management Transaction. Shareholders should vote BLUE and AGAINST the Management Transaction.

The proxy deadline for the BLUE proxy is September 14, 2020 at 5pm MST. Click here for voting instructions.

If you have already voted AGAINST the Management Transaction using the BLUE proxy, you do not need to do anything further and we thank you for your support.

If you have yet to vote or want to change your vote, you are encouraged to vote using only the BLUE proxy. Please disregard any other proxies you receive. If you have already submitted a proxy solicited by Management, you may still change your vote and protect your economic interests by voting your BLUE proxy today. The later dated proxy will supersede any earlier proxy submitted.

Need help voting? Please contact Laurel Hill Advisory Group as noted below.

QUESTIONS/ VOTING/ TENDERING ASSISTANCE

Shareholders who have questions or require voting or tendering assistance, may contact our communications advisor, proxy solicitation agent, information agent and depositary, Laurel Hill Advisory Group, by phone, toll-free at 1-877-452-7184 (North America) or +1-416-304-0211 (outside North America) or by e-mail at [email protected].

NOTICE

THIS ANNOUNCEMENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE OR FORM PART OF THE OFFER OR AN INVITATION TO PURCHASE, OTHERWISE DISPOSE OF OR A SOLICITATION OF AN OFFER TO SELL, ANY SECURITY. WILKS HAS FILED A TAKE-OVER BID CIRCULAR AND RELATED MATERIALS WITH VARIOUS SECURITIES COMMISSIONS IN CANADA PURSUANT TO WHICH THE OFFER IS MADE. THE TAKE-OVER BID CIRCULAR CONTAINS IMPORTANT INFORMATION ABOUT THE OFFER AND SHOULD BE READ IN ITS ENTIRETY BY CALFRAC SHAREHOLDERS AND OTHERS TO WHOM THE OFFER IS ADDRESSED. CALFRAC SHAREHOLDERS (AND OTHERS) WILL BE ABLE TO OBTAIN, AT NO CHARGE, A COPY OF THE OFFER TO PURCHASE, TAKE-OVER BID CIRCULAR AND VARIOUS ASSOCIATED DOCUMENTS ON THE SYSTEM FOR ELECTRONIC DOCUMENT ANALYSIS AND RETRIEVAL (SEDAR) AT WWW.SEDAR.COM. THE OFFER WILL NOT BE MADE IN, NOR WILL DEPOSITS OF SECURITIES BE ACCEPTED FROM A PERSON IN, ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER, WILKS MAY, IN ITS SOLE DISCRETION, TAKE SUCH ACTION AS IT DEEMS NECESSARY TO EXTEND THE OFFER IN ANY SUCH JURISDICTION.

ADDITIONAL DISCLOSURE

Wilks is relying on the exemption under section 9.2(4) of National Instrument 51-102 – Continuous Disclosure Obligations and exemptive relief provided by the Alberta Securities Commission in an Order dated August 4, 2020 (the “Order“) to make this public broadcast solicitation. The following information is provided in accordance with corporate and securities laws applicable to public broadcast solicitations. This solicitation is being made by Wilks, and not by or on behalf of the management of Calfrac. Wilks has engaged Laurel Hill Advisory Group to act as our communications advisor and proxy solicitation agent.

Based upon publicly available information, Calfrac’s registered office is at 4500, 855-2nd Street S.W. Calgary, Alberta, Canada, T2P 4K7, and its head office is at 411-8th Avenue S.W. Calgary, Alberta, Canada, T2P 1E3. Wilks is soliciting proxies in reliance upon the public broadcast exemption to the solicitation requirements under applicable Canadian corporate and securities laws (including the Order), conveyed by way of public broadcast, including press release, speech or publication, and by any other manner permitted under applicable Canadian laws. In addition, this solicitation may be made by mail, telephone, facsimile, email or other electronic means as well as by newspaper or other media advertising and in person. All costs incurred for the solicitation will be borne by Wilks.

Wilks and Dan and Staci Wilks together hold 28,720,172 Common Shares, representing approximately 19.78% of the issued and outstanding Common Shares of Calfrac on the basis of Calfrac’s disclosure in its management information circular dated August 17, 2020. that there are 145,616,827 Common Shares outstanding.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain information in this Press Release may constitute “forward-looking information”, as such term is defined in applicable Canadian securities legislation, about the objectives of Wilks as they relate to Calfrac. All statements other than statements of historical fact may be forward-looking information. Forward-looking information is often, but not always, identified by words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions.

Material factors or assumptions that were applied in providing forward-looking information include, but are not limited to: the intention of Wilks to make a formal take-over bid for the shares of Calfrac and the results of such bid; that required regulatory approvals will be obtained on terms satisfactory to Wilks; the reaction of Calfrac’s Board and management to the Bid; the response to and outcome of any applications to Courts or regulators relating to the transactions described herein or otherwise that may be made by or against Calfrac or Wilks; the intention of Wilks to apply to securities regulators for discretionary relief from certain statutory requirements applicable to the bid and the results of such application.

Forward-looking information contained in this Press Release reflects current reasonable assumptions, beliefs, opinions and expectations of Wilks regarding future events and operating performance of Calfrac and speaks only as of the date of this  Press Release. Such forward-looking information is based on currently publicly available competitive, financial and economic data and operating plans and is subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Calfrac, or general industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Many other factors could also cause Calfrac’s actual results, performance or achievements to vary from those expressed or inferred herein, including, without limitation, the success of the proposed Premium Bid, the reaction of the market and Calfrac’s shareholders, creditors and customers to the Premium Bid, the impact of legislative, regulatory, competitive and technological changes; the state of the economy; credit and equity markets; the financial markets in general; price volatility; interest rate and exchange rate fluctuations; general economic conditions and other risks involved in the hydraulic fracking industry. The impact of any one factor on a particular piece of forward-looking information is not determinable with certainty as such factors are interdependent upon other factors, and Wilks’ course of action would depend upon its assessment of the future considering all information then available.

Should any factor affect Calfrac in an unexpected manner, or should any assumptions underlying the forward-looking information prove incorrect, the actual results or events may differ materially from the events predicted. All of the forward-looking information reflected in this Press Release is qualified by these cautionary statements. There can be no assurance that the results or developments anticipated by Wilks will be realized or, even if substantially realized, that they will have the expected consequences for Calfrac, Calfrac’s shareholders or Wilks. Forward-looking information is provided, and forward-looking statements are made as of the date of this Press Release and except as may be required by applicable law, Wilks disclaims any intention and assumes no obligation to publicly update or revise such forward-looking information or forward-looking statements whether as a result of new information, future events or otherwise. Nothing herein shall be deemed to be an acknowledgement or acceptance by Wilks that the terms of the Management Transaction are legally permissible, appropriate or capable of implementation.

@aFairCalfrac

www.afaircalfrac.com 

SOURCE Wilks Brothers, LLC.

For further information: Laurel Hill Advisory Group, by phone, toll-free at 1-877-452-7184 (North America) or +1-416-304-0211 (outside North America) or by e-mail at [email protected]

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